Comment Text:
When considering position limits each futures contract should be considered quite differently. Most importantly, however, the options positions held by the participants in each market must be fully understood. Using the outright delta as a basis for position limits underestimates the potential liability that may exist due to a large options positions. Gamma and other Greeks can cause unexpected changes that dwarf the debts caused by Large Position Holders in Outright Futures. In the last several years, significant losses have occurred in several markets due in part to Vega and Gamma risk. The largest loss fell on Amaranth which lost a tremendous sum of money in options on futures spreads in an environment that certainly didn't understand the risks of the position.
Position limits would be totally inadequate without a risk management program that closely monitored and understood the implications of gamma and vega risk. These are essential elements of any risk management program and should be an important part of the CFTC's Position Limit Program.
