38 lines
2.3 KiB
Plaintext
38 lines
2.3 KiB
Plaintext
670 Part V: Index Options and Futures
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While the exchange does not tell us how much of an increase or decrease it uses
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in terms of volatility, one can get something of a feel for the magnitude by looking at
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the first two lines of the table. The exchange is saying that if the futures are
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unchanged tomorrow, but volatility "increases," then the call will increase in value by
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$460 (92 cents); if it "decreases," however, the call will lose $610 (1.22 points) of
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value. These are large piice changes, so one can assume that the volatility assump
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tions are significant.
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The real ease of use of the SPAN iisk array is when it comes to evaluating the
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iisk of a more complicated position, or even a portfolio of options. All one needs to
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do is to combine the risk array factors for each option or future in the position in
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order to arrive at the total requirement.
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Example: Using the above two examples, one can see what the SPAN requirements
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would be for a covered wiite: long the S&P future and short the Dec 410 call.
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Short 1
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Long Dec 410 call
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1 S&P Potential Covered
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Scenario Future Pft/Loss Write
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Futures unchanged; vol. up 0 460 - 460
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Futures unchanged; vol. down 0 + 610 + 610
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Futures up 1 /3 of range; vol. up + 3,330 - 2,640 + 690
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Futures up 1 /3 of range; vol. down + 3,330 - 1,730 + 1,600
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Futures down 1 /3 of range; vol. up - 3,330 + 1,270 -2,060
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Futures down 1 /3 of range; vol. down 3,330 + 2,340 - 990
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Futures up 2/3 of range; vol. up + 6,670 - 5,210 + 1,460
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Futures up 2/3 of range; vol. down + 6,670 - 4,540 +2, 130
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Futures down 2/3 of range; vol. up 6,670 + 2,540 -4, 130
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Futures down 2/3 of range; vol. down - 6,670 + 3,430 -3,240
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Futures up 3/3 of range; vol. up + 10,000 - 8,060 + 1,940
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Futures up 3/3 of range; vol. down + 10,000 - 7,640 +2,360
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Futures down 3/3 of range; vol. up -10,000 + 3,380 -6,620
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Futures down 3/3 of range; vol. down -10,000 + 3,990 -6,010
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Futures up ,, extreme" move + 7,000 - 3,130 +3\870
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Futures down "extreme" move - 7,000 + 1,500 -5,500
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As might be expected, the worst-case projection for a covered wiite is for the
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stock to drop, but for the implied volatility to increase. The SPAN system projects
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that this covered wiiter would lose $6,620 if that happened. Thus, "futures down 3/3
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of range; volatility up" is the SPAN requirement, $6,620. |