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What Are Vol Options (Straddle)

2020-10-19 02:51
You can now trade Binance Options on-the-go with the Binance App:
Download for Android

I. What are Vol Options?

Vol Options, commonly known as ‘Straddle’, are a neutral options strategy that involves simultaneously buying both put options and call options of an underlying asset, with the same strike price and expiration date, i.e. two transactions done in one by the system.
By buying a Vol Option, you can catch the market’s move regardless of its direction, with 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 is only the premium paid for the options.
However, Vol Options have a relatively higher premium cost than a call or a put option, and you may face the risk of losing the premium if the market does not move much.
Vol Premium = (Call Premium + Put Premium) * 0.95
*with about 5% discount
For example, if you expect extreme volatility in the price of Bitcoin, you can buy a 1-day BTC Vol Options, i.e. you are buying both a call and a put option with the same strike price of $40,000 and a premium of $100 each. If Bitcoin moves sharply beyond both options’ combined breakeven price, you can exit the trade profitably. To make a profit, you simply need to predict the magnitude of the 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 Vol Options on the Binance App?

If you predict that there will be a significant movement in the market, you can buy Vol Options to make a profit:
1. Log in to the Binance App and tap [Futures] - [Options]. First, select the option’s expiration time: 5 minutes, 10 minutes, 30 minutes, 1 hour, 4 hours, 8 hours, 12 hours, or 1 day. Next, enter the order quantity and tap [Vol]. For more information on Binance Options, please refer to What are Binance Options.
2. You will then see your order details: the name of the contract, the quantity, the strike price, the premium you need to pay (the premium is calculated in real-time when you enter the quantity), and the breakeven prices.
*Note that there are two breakeven prices for the Vol Options as you are buying a call option and a put option:
  • Breakeven Price of Call Option = Strike Price + (Premium/Quantity)
  • Breakeven Price of Put Option = Strike Price - (Premium/Quantity)
3. You can set two different target prices (upper and lower) for the options by entering the distance (+/-) from the strike price. You can see the estimated PNL once you entered the target prices.
*The estimated PNL is calculated as follows:
  • Upper Target Price = Max [(Target Price - Strike Price)*Quantity - Premium, - Premium]
  • Lower Target Price = Max [(Strike Price - Target Price)*Quantity - Premium, - Premium]
4. Tap [Confirm] to execute the trade.
5. Once you have placed the order, you can view your position, including unrealized profit and loss, time to expiration, and breakeven price under [Positions]. Your options will be shown on the chart too.
6. Since Binance Option is an American-style option, you can settle the options at the strike price any time before the expiration date.
  • To settle manually:
Under [Positions], tap [Settle] to realize the Profit and Loss of your options, then tap [Confirm] to settle.
  • To settle on expiration date:
If you do not settle the option before the expiration date, it will be automatically settled or exercised upon the expiration date.
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