Getting an The "extra bang for the buck" on SPAN margin

M

mance

Hi guys,

I just registered and hope that you "oversees" options traders will be able to answer some of the questions I have.
I've been trading/selling options for 2 yrs. now (mostly strangles on european index options like the EUROSTOXX and DAX) but am quite unhappy with the margin requirements set by the EUREX.
I never tried trading US options,rule based marginig used by the CBOE is just not my thing :(
But I've done some research on the SPAN margin implemented by the CBOT and CME and read a very interesting article at the investopedia site:

http://www.investopedia.com/articles/optioninvestor/05/010505.asp

My broker does not have any access to an US options market,but I would be very grateful if someone could give us some feedback on this.

Are the SPAN margin requirements lower in case one trades call and put spreads (I assume that the correct word is "CONDOR") than simple naked strangles?

Thx in advance,my compliments to the forum and the level of discussion...

Best regards form Vienna,Austria
 
The margins for credit spreads would be lower than that for naked strangles, but that should be the case for any type of margin. I am not familiar with Eurex margin rules.

In simple terms you are only paying for one side with SPAN, the riskier side. Since credit spreads have limited loss potential, if you had a few that were in opposite directions then generally the greater exposure would be charged. SPAN is risk based and realizes that having positions on opposite sides of the market is about as risky as having a position on only one side.
 
Some margin systems take into account the volatility of the underlying.

This can get pretty uncomfortable as soon as vol is exploding for whatever reason.

I do not know if SPAN and Eurex RBM will behave the same way with respect to vol.
 
Quote from ktm:

The margins for credit spreads would be lower than that for naked strangles, but that should be the case for any type of margin. I am not familiar with Eurex margin rules.

In simple terms you are only paying for one side with SPAN, the riskier side. Since credit spreads have limited loss potential, if you had a few that were in opposite directions then generally the greater exposure would be charged. SPAN is risk based and realizes that having positions on opposite sides of the market is about as risky as having a position on only one side.
More...

Hi ktm thx for your answer..
There is an interesting difference between SPAN and the Eurex RBM:

As far as I was able to undestand the system,our Eurex RBM uses only the difference in points between the strike and the present underlying.
Let me give you a few live quotes:

Underlying:Eurostoxx Index (is a paneuropean Index for blue chips listen in €)

Undelying at 14:00 CET: 3000

PUTS MAY:
(yesterday settlement prices quoted)

2700 Premium 7€ Margin: 575€
2750 Premium 10€ Margin: 575€
2800 Premium 19€ Margin: 575€
2850 Premium 26€ Margin : 840€

The Margin parameter for OPtions on the Eurostoxx is 230 Points,as you can see the P2850 contract breached the limit and thus has quite a higher margin.
Eurex has a Margin calculator and it can be downloaded free of charge.

The interesting thing I was comparing some naked strangle and condor positions hoping that one may get a bigger bang for his margin buck.
However according to the results it's just the same..
You get more premium for the naked strangles--->the margin is higher

You get less premium for a condor--->
the lower margin is almost proportional
to the lower premium...

I was just delighted by the article about SPAN Margining I read and the extra profit one get's if selling condors instead of naked strangles...
 
Re: GLOBEX
Quote from just21:

Are the CME option markets still on the floor or is the liquidity on the screens ?
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They have (E)MMs for ES and NQ options. Always use
limit orders and try to get a better fill than what you see.

( also: options on ER2, EuroFX, Yen )
 
I trade credit spreads and conclude that there are no margin benefits for this strategy using SPAN, over using index options on the CBOE, but if before expiry I have some unused margin then I could sell more naked options on the CME then the CBOE. Have I got this right?
 
Quote from just21:

I trade credit spreads and conclude that there are no margin benefits for this strategy using SPAN, over using index options on the CBOE, but if before expiry I have some unused margin then I could sell more naked options on the CME then the CBOE. Have I got this right? [/QUOTE

Hi just21!

On the contrary...
I don't have the CMEs SPAN
calculator but according to the article I posted a link to,you can see that the Margin on CMEs ES is much more favorable than the CBOEs margin...

I was just hoping that someone with the SPAN Calculator could post us some figures on ES spreads..
More...
 
Just21,

I believe that if you had credit spreads on both sides of the market, that you would pay for both on the CBOE and only one at the CME.

I don't have the SPAN calculator.
 
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