Not to be confused with a futures option, it is a futures contract on an option’s payoff. In fact, a futures-style option is not an option but rather a futures contract on an option-like payoff. This structure involves the so-called futures-style margining. As with a standard futures contract, no money is paid up front. The contract is marked to market on a daily basis, and the long (short) parties’ margin accounts are credited (debited) with any increase in the futures option price. That is, the final settlement amount is the option’s payoff. The buyer of a futures-style option posts margin as is usually done in trading standard futures contracts.
In this sense, a futures-style option is a bet on the potential payoff from an option.
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