What are the Most Common Misconceptions About the Margin Approach?

Misconception #1: If I implement a margin management plan, I will not be able to participate in market moves to the upside.
This is a common misconception. By scaling into higher levels of margin coverage as the opportunity improves and utilizing flexible option strategies, a producer can protect forward margins and improve his positions. They can also manage a position over time and further improve their margin by making adjustments that strengthen their position. This will allow them to benefit from fluctuations in the market.

Misconception #2: Engaging in a margin management plan takes too much time.
This is one of the huge benefits of working with a consulting firm like CIH. Few producers have the time and resources to efficiently carry out this process alone. By working with your CIH consultant to outline a margin management policy and utilizing our proprietary online software you can project forward margins with a mouse click. By utilizing these two resources, many of my clients are able to devote less than one hour per week towards margin management.

Misconception #3: Isn’t it really just buying puts and selling calls?
Buying puts and selling calls is simply one of many tools in the Margin Management toolbox. To be an effective margin manager, using the right strategy, based on the producer’s need and risk, is paramount. A few of the common strategies used include: futures, calls, puts, forward price contracts, and basis contracts. In many cases a combination of strategies are used, based on the opportunity for that particular portion of the margin.

Misconception #4: All Margin Management programs are the same?
This is simply false. Every Margin Management program should be different because very few operations are alike. This is the difference between trading a generic crush, and managing an individual margin. Although the basic components of a producer’s margin are similar, every producer’s operation, cost structure, and goals are unique. By getting to know our clients and their operations we build an individually based model. This allows us to project each client’s forward margin opportunities. A personalized approach is one of many things that sets CIH Margin Management apart from other “cookie cutter” type margin programs.

Misconception #5: We already do that in-house.
Many operations feel they already “do this sort of thing” in-house. However, the reality is that CIH’s margin management service is complementary to the work that you, or your team, is already doing. CIH does not replace what you’re doing, we make your system more powerful and effective. CIH does not offer a “managed” product. We work closely with you to help you identify opportunities and make the best decisions for your unique operation.