Volatility

Volatility: Definition

A measure of a stock's tendency to move up and down in price, based on its daily price history over the latest 12-month period.

Source: Source: Edwards, Robert and Magee, John.Technical Analysis of Stock Trends 9th Edition; (c) 2007.

Historical Volatility: The actual volatility that the market has traded in the past. This is the easiest to determine, although the historical can vary greatly depending on the time frame used.

Seasonal Volatility: Many commodities sometimes exhibit seasonal tendencies, becoming more volatile at certain times and less volatile at other times of the year.

Implied Volatility: The volatility derived from the option price and the Black Scholes or equivalent model. This is the actual market volatility of the option. Some traders consider the implied volatility to be a good estimate of future market volatility or the best estimate of current volatility.

Predicted Volatility: The volatility the trader believes the market will trade in the future. This is not the same as the implied but is the volatility a trader will use in the options evaluation model.

Future Volatility: This is the volatility the market will actually trade at in the future and is not only the most important, but also the hardest to know.

Source: Rotella, Robert. The Elements of Successful Trading; (c) 1992.