Binance Volatility Index (BVOL) is a derivative financial tool to measure the implied volatility of the cryptocurrency market.
The Volatility Index is derived from the Binance Options market’s crypto trades, such as BTC and ETH. It is calculated using a formula that factors in the weighted average of the implied volatility of specific crypto options contracts.
The Volatility Index, or BVOL, is a useful tool for traders and investors as it provides a real-time measure of the market's expectation of future volatility. This Index can be used to gauge market sentiment, improve risk management, and help traders make more informed decisions. A high BVOL indicates that significant price changes are anticipated, while a low BVOL suggests minor price fluctuations are expected.
How to access the Binance Volatility Index?
1. Go to [Derivatives] - [Options].
2. You’ll then see the Binance Volatility Index on the Option’s trading page under the relevant contracts.
3. You can also find the Binance Volatility Index here. Alternatively, you can click the [BVOL Index] tab under the [Tools] section to access the Volatility Index page from the Option’s trading page.
Binance Volatility Index Calculation
The Binance Volatility Index measures the expected level of volatility in the crypto market. This Index is a weighted average of the implied volatility of options contracts with different strike prices and expiration dates.
To estimate the expected volatility, the Volatility Index uses a mathematical model that takes into account the prices of put and call options. This calculation is based on a 30-day period and results in a percentage value that represents the market's expectation of the magnitude of future price changes in the reference crypto.
The formula for calculating the Binance Volatility Index is as follows:
Where the components of the formula are described as follows:
 | is the annualized time to expiry for the near term option (calculated as a percentage of the minutes in a year.) |
 | is the “strike-weighted” near term option implied variance. |
 | is the number of minutes to the near term option expiry. |
 | is the number of minutes in 30 days. |
 | is the number of minutes to the next term option expiry. |
 | is the number of minutes in 365 days. |
 | is the annualized time to expiry for the next term option (as percent of minutes in a year). |
 | is the “strike-weighted” next term option implied variance. |
The Options implied variances are calculated through the following formula:
Where the components of the formula are described as follows:
Note: Part of the formula is a sum that runs through the specific term strikes, thus the presence of the “i” tag in the formula.
 | ΔKi is half the difference between the strike prices on either side of Ki. |
 | The specific strike Ki. |
 | The near term option discount factor. |
 | The next term option discount factor. |
 | The quoted price for the specific option strike. |
 | The at-the-money strike price. |
 | The near term forward price. |
 | The next term forward price. |
The Near Term and Next Term Options
The Volatility Index estimates the volatility of the underlying asset by looking at the perceived volatility at a future point in time (30 days from now).
The way this is computed is by looking at:
- the observed implied volatility in the options market for options before and after this 30-day cutoff period.
- the near term options (expiry before 30 days) and the next term options (expiry after 30 days).
By looking at these options and “averaging” them, a proxy of the perceived volatility can be obtained in a time range between the 2 expiration, namely 30 days from the observation time.
Options Selection
To enhance the accuracy of the derived measure, the following steps are taken to select the options and strikes used in the Index calculation:
- The selected options are out-of-the-money BTC calls and out-of-the-money BTC puts centered around an at-the-money strike price, K0.
- BTC options quoted with zero bid prices are excluded from the Binance Volatility Index calculation.
This detail is important as it’s the reason why the number of options used in the calculation of the Volatility Index changes through time. The strike price range of options with non-zero bids tends to expand and contract, causing this variability.
Once two consecutive call/put options have zero bid prices, no options with higher/lower strikes will be considered.
See the example below, assuming the at-the-money strike price is 20,000 USDT. It’s also important to note that the quoted values are an example only.
Put Options:
| Put Option Strike | Bid | Ask | Included in the BVOL? |
| 18,800 | 0 | 0.40 | Excluded due to the occurrence of two consecutive zero bids |
| 18,900 | 0.07 | 0.40 | Excluded due to the occurrence of two consecutive zero bids |
| 19,000 | 0.07 | 0.45 | Excluded due to the occurrence of two consecutive zero bids |
| 19,100 | 0 | 0.45 | No |
| 19,200 | 0 | 0.45 | No |
| 19,300 | 0.07 | 0.45 | Yes |
| 19,400 | 0.5 | 0.7 | Yes |
| 19,500 | 0.8 | 0.9 | Yes |
| 19,600 | 1 | 1.1 | Yes |
| 19,700 | 1.4 | 1.5 | Yes |
Call Options:
| Call Option Strike | Bid | Ask | Included in the BVOL? |
| 21,000 | 0.07 | 0.40 | Yes |
| 21,100 | 0.07 | 0.15 | Yes |
| 21,200 | 0 | 0.45 | No |
| 21,300 | 0.07 | 0.45 | Yes |
| 21,400 | 0.1 | 0.45 | Yes |
| 21,500 | 0 | 0.45 | No |
| 21,600 | 0 | 0.3 | No |
| 21,700 | 0.1 | 0.12 | Excluded due to the occurrence of two consecutive zero bids |
| 21,800 | 0.05 | 0.7 | Excluded due to the occurrence of two consecutive zero bids |
| 21,900 | 0 | 0.05 | Excluded due to the occurrence of two consecutive zero bids |
Note: The only case for which both a call and a put option are selected for the same strike is for the at-the-money strike option.
Special Adjustments
The standard expiration selection logic aligns with the original Volatility Index expiration selection method, which restricts the option selection range from 23 to 37 days prior to expiration.
Should the quotes for these option expirations are insufficient to accurately calculate the Volatility Index value, the selection boundaries will be broadened. This adjustment allows for more flexibility by incorporating dates that fall before the 23-day threshold and beyond the 37-day limit. Please note that this is a rare case, but the flexibility is critical to ensure the continuous calculation of the Index.
Index Stability Mechanism
To improve the quality of the Binance Volatility Index and its utility as a reference point, a smoothing mechanism known as the Exponential Moving Average (EMA) is applied. Currently, a 240-point EMA is in effect. This means for each computation performed every second, data from a preceding 240-second window is taken into account.
Formula:
Where the following holds for the half-life decay factor Lambda:
a Lambda of roughly 0.01 is associated to a window of 120 seconds
This method improves the index stability and the safety of its use as a reference value.