Volatility, Historical Volatility, Implied Volatility, VIX
Volatility
The Volatility of an asset, which usually is quoted as the annual
standard deviation of an asset's price, provides a measure of the random
variability or dispersion of price per unit of time. If the price of an
asset fluctuates widely over time, the asset has a high volatility, while if
the price is relatively stable, the asset has a low volatility. Historical
volatility and implied volatility, generally categorizes volatility in
general. Implied volatility and your expectations of volatility in the short
term and possibly in the long term can be dramatically affected when news comes out.
Historical Volatility
The standard deviation of the asset price returns, based on recent
historical data, is the Historical Volatility. An annualized volatility
level usually expresses it. Therefore, this is a measure of recent dispersion in the price of the asset.
Implied Volatility
Implied Volatility is the level of volatility that will result in the
calculation of option fair value that is equal to the current option trading
price. What is inferred from the price at which the option is trading, is
the volatility. The current market consensus of the volatility reflects
this. Whether option premiums are relatively expensive or inexpensive, or
whether that premium is truly warranted or not is measured by the implied volatility.
VIX
In 1993, the VIX was established by the CBOE. This is a measure of stock
market volatility and uncertainty. Traders use this as a general indication
of index option implied volatility and as an indicator of volatility of the
U.S. equity market even though the VIX is only a general measure of
volatility in the OEX. It is calculated based on option activity. Fear or
pessimism in the market are indicated by high values. Optimism or
complacency are indicated by low values. High values indicating widespread
fear in the market is a bullish sign that the market may soon reverse, which
is generally used as a contrarian indicator of investor sentiment.
One single winning trade
could pay for the membership for years to come. DISCLAIMER: THIS INFORMATION IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE ANY FINANCIAL ADVICE. RISK IS INVOLVED IN ALL STYLES OF MONEY MANAGEMENT. Uncovered options trading involves greater risk than stock trading. You absolutely must make your own decisions before acting on any information obtained from this Website. The return results represented on the web site are based on the premium received for the selling options short and do not reflect margin. It is recommended to contact your broker about margin requirements on uncovered options trading before using any information on this web site. Use our " Trade Calculator" to recalculate our past performance in relation to the margin requirements, brokerage commissions and other trading related expenses. Past performance is not indicative of future results.
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