Why is there no marking to market on option writing?


I’m sure a more technical person will be able to answer this correctly, but my answer should give you a layman’s understanding of why option writing is not marked to market. Futures have a linear payoff - this means that your profits/losses will be the same if you are long or short. Since your profits/losses can be calculated easily, all futures are marked to market. Marked to market means you give/take the profits/losses on the same day.

Options on the other hand have a non-linear payoff. This means that your profits/losses are different if you are long or short. If you’re long options, your profits are unlimited but losses are limited. If you are short options, you have unlimited potential for loss and this cannot be marked to market because there is no actual counter party who is taking the profit.

What happens instead in options is that you pay a certain amount of margin when you enter the short position. Once you are in the position, the margin blocked increases/decreases based on the up/down move of the underlying on a daily basis (EOD).