Margin calculation


I think there must be a great margin calculation error in my system “Kansas City Shuffle”.

It’s a “long-net” options position upon a single stock…

This is the 'Model Account Status":

Started $50,000

Buy Power $2,895

Cash $37,531

Equity $1,420

Cumulative $ $9,561

Total System Equity $59,561

Margined $36,056

The amount of “Margined” is completely without sense… you can try to load the position on a professional data provider like Bloomberg or Reuters and see…

Is two days that my operativity is compromised…


P.s. : sorry for my not perfect english.

Hi, Marco:

Alas, when it comes to margin-use calculations for complex portfolios of option positions, C2’s software needs a bit of work. In your trading system, you have quite a few open option positions, with many possible pairings of positions to form spreads and strangles. As opposed to a real-world margining system, C2 uses an crude brute-force algorithm: it looks for spreads and strangles on a first-seen basis. That is: the first spread or strangle it “sees” when analyzing your portfolio is what it uses to determine margin requirements, regardless of whether there is a “better” solution with more favorable margin requirements.

In your case, C2 sees a short May 46 put position, which it pairs with your long August 44 put position. That’s where your margin requirement comes from.

Ideally, C2 would run an optimization and find the most efficient use of margin when analyzing complex option portfolios. That’s been on our “to do” list for some time. We hope to get to it soon.

In the meantime, I need to ask you to try your best to make the simulation work for you. C2 may overstate your margin requirements of your C2 Model Account. Of course, anyone trading your system in real life at a real broker will have smaller margin requirements, effectively increasing their return on capital when following your system. So, as a temporary measure, you could tell potential subscribers in your system description text that your system is tradable with less capital, due to the way that C2 overstates margin requirements for certain collections of spread and strangle trades.

I know this is not the ideal solution, but it’s the best I can suggest right now, since a complete rewrite of the C2 options margin calculation algorithms is a substantial project and not something we can do immediately.

Even so, I think you can effectively demonstrate your system’s performance, despite the fact that your return on capital will be lowered by the overstatement of margin requirements.


Ok Matthew, thanks for your courtesy.

I’ll wait for the new C2 options margin calculation and in the meantime I’ll try to keep my position “smaller”.


Hi Matthew,

there are some other problems with the calculation of the system’s equity.

In the “Statistics” is reported an inesistent drawdown :

Max peak-to-valley drawdown (historical) 14.72%

drawdown period April 23, 2010 to April 26, 2010

which is compromising the other statistics such as:

Probabilities of future account loss

Chance of 10% account loss 87.8%

Chance of 20% account loss 69.0%

Chance of 30% account loss 51.2%

and so on…

Can you please adjust them?

Thank you,