Performance bond requirements for options reflect movements in the underlying futures price, volatility, time to expiration and other risk factors, and adjust automatically each day to reflect the unique and changing risk characteristics of each option series. In addition, long options must be paid for in full. CME Clearing also mandates stringent minimum performance bonds for short option positions. Option sellers are assessed risk requirements as determined by CME SPAN in addition to
the value of the option.

CME Clearing calculates performance bonds using a system developed and implemented by CME in 1988 called Standard Portfolio Analysis of Risk™ (CME SPAN®).

CME SPAN bases performance bond requirements on the overall risk of the portfolios using parameters as determined by CME Clearing, and represents a significant improvement over other performance bond systems, most notably those that are “strategy-based” or “delta-based.” CME SPAN simulates the effects of changing market conditions and uses standard options pricing models to determine a portfolio’s overall risk. It treats all products uniformly while recognizing the unique
features of options. In standard options pricing models, three factors most strongly affect options values: the underlying price, volatility (variability of the underlying price), and time to expiration. As these factors change, positions may gain or lose value.
 

CME SPAN constructs scenarios of price and volatility changes to simulate what the entire portfolio might reasonably lose over a one day time horizon. The resulting CME SPAN performance bond requirement covers this potential loss. CME has licensed CME SPAN to exchanges and clearing organizations around the world and has successfully established CME SPAN as the industry’s standard performance bond system.