How are margin updates calculated? I need some pros here!

B

B Johnson

Hey elite traders, thanks for all the help you guys have offered and knowledge you have contributed to this site! I've been searching here and using Google to find an answer, but I'm still not 100% clear.

Specifically for futures options... I understand the initial margin is calculated by some formula (SPAN) but how does the updated margin (when it's marked-to-market?) work? Is it from the updated options prices only? An example would illustrate this most clearly.

Let's say I take a bull call spread with the short OTM call being worth $1,400 and the long OTM call costing $1,200 for a net credit of $200 with an initial margin of say, $700. If the next week the calls are worth $700 and $600, respectively, then will my new margin be $600 exactly? Is the new margin based solely on the new market prices for the options? And is this what mark-to-market means? Or is it based on some algorithm like the initial margin was based?

Thanks in advance guys, I appreciate your help.
 
http://www.nfa.futures.org/nfa-compliance/publication-library/margins-handbook.pdf

Computation of Margin Calls:
In determining margin calls, accounts shall be reviewed as of the close of the trading day. Firms, at their discretion, may issue margin calls on a more frequent basis including the issuance of intra-day margin calls. A margin call is issued whenever the margin equity (plus outstanding calls) falls below the maintenance margin. The amount of the call is the difference between the margin equity and the initial margin requirement less any previously issued margin calls.

If your FCM or broker pays for "real time" span margin, the CME updates the margin requirements though that system a few times a day. I know there is at least a AM, PM and Settlement margin requirement for each option. I don't know the times they are issued. Your FCM or broker can wait until end of day if they choose. See above.

PC-Margin is very difficult to use, but will provide the margin requirements. It's not the automented system that cost money but it's free. http://www.cmegroup.com/clearing/risk-management/#purchasing
 
rmorse said:
The amount of the call is the difference between the margin equity and the initial margin requirement less any previously issued margin calls.
More...
Okay thanks. So it IS based solely on the new values of the options. But is it valued using SPAN? Only approximated by the actual market value change? Can somebody please give me a clear answet
 
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