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Q. What is SPAN Margin?
Exchanges use Standard Portfolio Analysis of Risk (SPAN) to calculate risk and margins for F&O portfolios. SPAN margin is monitored and collected when an order is placed, and it is updated by the exchanges throughout the day. SPAN margin is critical for people who act as options and futures writers in the equity market. The writers require a considerable margin in order for their losses to be covered. The SPAN system calculates the one-day move based on the worst-case scenario, and as a result, the margin is set for each and every position. SPAN calculates the maximum possible loss for a portfolio based on the price and volatility of the underlying security, as well as several other variables. SPAN margins differ from security to security depending on the type of risk that must be accepted along with the security.