54 lines
2.2 KiB
Plaintext
54 lines
2.2 KiB
Plaintext
Cl,apter 34: Futures and Futures Options 669
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Now let us consider an option example. In this type of calculation, the exchange
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uses the same moves by the underlying futures contract and calculates the option
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theoretical values as they would exist on the next trading day. One calculation is per
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formed for volatility increasing and one for volatility decreasing.
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Example: Using the same S&P 500 futures contract, the following array might depict
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the risk array for a long December 410 call. One does not need to know the option
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or futures price in order to use the array; the exchange incorporates that information
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into the model used to generate the potential gains and losses.
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Scenario
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Futures unchanged; volatility up
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Futures unchanged; volatility down
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Futures up one-third of range; volatility up
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Futures up one-third of range; volatility down
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Futures down one-third of range; volatility up
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Futures down one-third of range; volatility down
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Futures up two-thirds of range; volatility up
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Futures up two-thirds of range; volatility down
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Futures down two-thirds of range; volatility ur
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Futures down two-thirds of range; volatility /o:n
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Futures up three-thirds of range; volatility up
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Futures up three-thirds of range; volatility down
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Futures down three-thirds of range; volatility up
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Futures down three-thirds of range; volatility down
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Futures up "extreme" move
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Futures down "extreme" move
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Long 1
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Dec 410 call
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Potential
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Ph/Loss
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+ 460
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610
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+ 2,640
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+ 1,730
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- 1,270
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- 2,340
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+ 5,210
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+ 4,540
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- 2,540
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- 3,430
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+ 8,060
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+ 7,640
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- 3,380
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- 3,990
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+ 3,130
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- 1,500
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The items in the risk array are all quite logical: Upward futures movements pro
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duce profits and downward futures movements produce losses in the long call posi
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tion. Moreover, worse results are always obtained by using the lower volatility as
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opposed to the higher one. In this particular example, the SPAN requirement would
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be $3,990 ("futures down three-thirds; volatility down"). That is, the SPAN system
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predicts that you could lose $3,990 of your call value if futures fell by their entire
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range and volatility decreased - a worst-case scenario. Therefore, that is the amount
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of margin one is required to keep for this long option position. |