This is confusing. For some reason, the option for the Apple Watch to unlock the Mac is missing in preferences. I pretty sure I’m not “losing it!” 
Any ideas of what I need to do to have this option available? I haven’t changed anything. I’m using the M1 13" MBP with the latest version of Big Sur.
You might check the following:
Make sure that your devices are set up as follows:
- Your Mac has Wi-Fi and Bluetooth turned on.
- Your Mac and Apple Watch are signed in to iCloud with the same Apple ID, and your Apple ID is using two-factor authentication.
- Your Apple Watch is using a passcode.
Thanks @ChrisUpchurch. This is strange, I got up this morning and just read your reply. I went to my MBP to make sure my settings where correct as you suggested. Having done nothing since I first posted the problem, my MBP unlocked with my watch and the option to do so now appears in system preferences. Again, I never changed a thing. Strange but I’m happy it is working again. Thanks again.
I’ve seen this on my intel iMac when my bluetooth had issues, few minutes later after everything was normal again the option reappeared. Really strange!
I think when the Watch and/or the Mac is in ‘do not disturb’ mode that the feature is hidden. Maybe.
