How does options margining work?
In the case of futures, both short and long are charged initial margin, and after this, both sides pay daily mark-to-market margin. This is not how options work. In the options market, the long pays up the full price of the option on the same day, and the short puts up initial margin. After this, the long is relieved of all responsibilities to his position, and the short pays daily mark-to-market margin. The initial margin of the option short is the largest loss that he can suffer with a one-day price change that goes against him. This is calculated using theoretical option-pricing formulas.
