Vol Option is the third option feature available on Binance Options. Currently, access to Binance Options is provided to mobile applications only. Vol Option is available on Binance App from 15th Oct: Android 1.31.0 and iOS 2.20.0
I. What is a Vol Option?
A Vol option is also called a Straddle, neutral options strategy that involves simultaneously buying both a put option and a call option of an underlying asset, with the same strike price and expiry date, i.e. two transactions are done in one by the system.
By buying a Vol option, the user is able to catch the market’s move regardless of direction. Users can have the opportunity to gain unlimited profits as long as the underlying asset moves sharply above the breakeven point (strike price +/- premium), and the maximum loss would be the premium paid for the options.
However, the Vol option has a relatively high premium cost in comparison to a call or a put option, and there is a risk of loss of the premium if the market does not move so much.
Vol Premium = (Call Premium + Put Premium) * 0.95
*about 5% discount
For example, if you expect extreme volatility in the price of Bitcoin a day after its halving event, you could express this prediction by buying a 1-day BTC Vol option, i.e. you are buying both a call and a put option with the same strike price of $7000 and a premium of $100 each. If Bitcoin moves sharply beyond the combined breakeven price of both options, you can exit the trade profitably. To be profitable, you simply need to predict the magnitude of market’s volatility instead of its direction.
PNL = Max [ ( Underlying Price- Strike Price ) * Quantity - Premium, ( Strike Price - Underlying Price ) * Quantity - Premium, - Premium]
II. How to buy a Vol option on App?
If you predict that there will be a big movement in the market, you can buy Vol option on the App.
1. Select a contract and expiration time of the option: 5 minutes, 10 minutes, 30 minutes, 1 hour, 4 hours, 8 hours, 12 hours and one day. Next, select the order type "Vol" and enter the quantity to be ordered. Contract Specifications of Binance Options
2. After entering the quantity, an order confirmation box will pop up to confirm: contract, quantity, strike price, premium (the premium is calculated in real-time when the user enters the quantity, and it is 0 when the quantity is not entered) and the breakeven prices.
*Note that there are two breakeven prices for Vol option, corresponding to call and put options:
- Breakeven Price of Call Option = Strike Price + (Premium/Quantity)
- Breakeven Price of Put Option = Strike Price - (Premium/Quantity)
3. You can choose to set two Target prices (upper and lower) by entering the distance (+/-) from Strike price, which can be set independently, "--" if not set. The estimated PNL is calculated and shown underneath.
*The estimated PNL formula as follows:
- For Upper Target Price, = Max [(Target Price-Strike Price)*Quantity-premium, -premium]
- At Lower Target Price, = Max [(Strike Price-Target Price)*Quantity-premium, -premium]
4. Click the confirm button to execute the trade.
5. Once you have placed the order, you shall be able to view your position, including unrealized profit and loss, time to expiration and breakeven price. And also, your option will be shown on the chart.
6. Since Binance Option is American Style option, you could settle the option at the strike price any time before the expiry date.
- Settle manually
Under the “Positions” tab, click “Settle” to realize the Profit and Loss of your option. Click “Confirm” to settle your option.
- Wait till expiry
If you do not settle the option before the expiry date, it will be automatically settled or exercised when it comes to the expiry date.