Spread Calculation Example
 

Scanning Based Spreads:

Scanning based spreads are spreads that we have setup so that they scan together as one target product before they are spread against each other. This is used for products that will travel in a similar pattern of price movements. One example would be Treasury products.

 

Calculation:
Scanning Based Spreads

1. 70% credit for Ultra Long T-Bond, 30Yr, 10Yr, 5Y at a ratio of 2:2:3:5
2. 70% credit for the 3Yr, 2Yr at a ratio of 1:1

This means that for any combination of the above products at their correct ratio you will receive a 70% credit off the top of the highest loss of the legs plus the smallest gain between the legs.

 

Steps:

  1. Margin rate per leg times ratio per leg
  2. Of those two values take the smaller and multiply by the percent credit.
  3. Take the value of the higher value and subtract the value you get from Step 2

Examples:
+2 30Yr and -3 10Yr
30Yr - $3100
10Yr - $1600

  1. 30Yr - 3100 * 2 = 6200; and 10Yr - 1600 * 3 = 4800
  2. 4800 * 0.7 = 3360
  3. 6200 - 3360 = 2840

Span Scenario #

30 Year Scenarios

10 Year Scenarios

Span Scanned Scenarios

1 0.00 0.00 0.00
2 0.00 0.00 0.00
3 -2,066.00 1,599.00 152.80
4 -2,066.00 1,599.00 152.80
5 2,066.00 -1,599.00 946.70
6 2,066.00 -1,599.00 946.70
7 -4,134.00 3201.00 307.20
8 -4,134.00 3201.00 307.20
9 4,134.00 -3201.00 1,893.30
10 4,134.00 -3201.00 1,893.30
11 -6,200.00 4,800.00 460.00
12 -6,200.00 4,800.00 460.00
13 6,200.00 -4,800.00 2,840.00
14 6,200.00 -4,800.00 2,840.00
15 -6,138.00 -4,752.00 455.40
16 -6,138.00 -4,752.00 2,811.60

All margin and credit rates on this page are for example purposes only.

Inter Spread Calculations:

Inter Spreads are calculated as a percentage of credit off the top of the full outright margin of the products that make up the legs of the spread.

 

Example:
Corn vs. Soybeans (2:1) - 55% Inter Rate

 

Outright Rates
Corn $1750
Soybeans $2500

 

$1750*2 + $2500 = $6000 outright margin before Inter spread credit is applied.

With Inter spread credit applied to each leg of the spread there is a savings of $3300 total (3500* 0.55 + 2500*0.55 = $3300).
When you subtract the total savings from the outright margin amount you get $2700, which is your final margin charge on this spread.

 

Intra Spread Calculations when there is a rate of $0:
Intra spreads that display a rate of $0 is not necessarily the case. The way that SPAN calculates the spread margins on a portfolio is as follows:(Outright rate of leg 1 - Outright rate of leg 2) + Intra Spread Charge. The rates displayed on the Intra Spread pages are all of these rates with the exception where the formula would create a negative number. These rates are displayed as zeros. The rate for these spreads is: Outright rate of leg 1 - Outright rate of leg 2.

 

Example:
Product X Month 2 - $500
Product X Month 3 - $500
Product X Month 4 - $750

 

Intra Spread Charge Month 2 vs. 3 - $200
Intra Spread Charge Month 2 vs. 4 - $50
Intra Spread Charge Month 3 vs. 4 - $0

 

Portfolio:
+1 Month 2 and -1 Month 3 has a margin of $200 : ($500 -$500)+$200
+1 Month 2 and -1 Month 4 has a margin of $300 : ($750 -$500)+$50
+1 Month 3 and -1 Month 4 has a margin of $250 : ($750 -$500)+$0

 

All margin and credit rates on this page are for example purposes only.

 
 

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