Some traders mistakenly believe that volatility is based on a directional trend in the stock price. Not so. By definition, volatility is simply the amount the stock price fluctuates, without regard for direction.
As an individual trader, you really only need to concern yourself with two forms of volatility: historical volatility and implied volatility. (Unless your temper gets particularly volatile when a trade goes against you, in which case you should probably worry about that, too.)
Historical volatility is defined in textbooks as “the annualized standard deviation of past stock price movements.”
Implied volatility is not based on historical pricing data on the stock. Instead, it’s what the marketplace is “implying” the volatility of the stock will be in the future, based on price changes in an option. Like historical volatility, this figure is expressed on an annualized basis. But implied volatility is typically of more interest to retail option traders than historical volatility because it's forward-looking.
IMPLIED VOLATILITY AND OPTION PRICES :-
"Implied volatility is a dynamic figure that changes based on activity in the options marketplace. Usually, when implied volatility increases, the price of options will increase as well, assuming all other things remain constant. So when implied volatility increases after a trade has been placed, it’s good for the option owner and bad for the option seller.
Conversely, if implied volatility decreases after your trade is placed, the price of options usually decreases. That’s good if you’re an option seller and bad if you’re an option owner."
How to signify the Implied Volatility :-
As an individual trader, you really only need to concern yourself with two forms of volatility: historical volatility and implied volatility. (Unless your temper gets particularly volatile when a trade goes against you, in which case you should probably worry about that, too.)
Historical volatility is defined in textbooks as “the annualized standard deviation of past stock price movements.”
Implied volatility is not based on historical pricing data on the stock. Instead, it’s what the marketplace is “implying” the volatility of the stock will be in the future, based on price changes in an option. Like historical volatility, this figure is expressed on an annualized basis. But implied volatility is typically of more interest to retail option traders than historical volatility because it's forward-looking.
IMPLIED VOLATILITY AND OPTION PRICES :-
"Implied volatility is a dynamic figure that changes based on activity in the options marketplace. Usually, when implied volatility increases, the price of options will increase as well, assuming all other things remain constant. So when implied volatility increases after a trade has been placed, it’s good for the option owner and bad for the option seller.
Conversely, if implied volatility decreases after your trade is placed, the price of options usually decreases. That’s good if you’re an option seller and bad if you’re an option owner."
How to signify the Implied Volatility :-
Implied Volatility in Case of Index Option
Implied Volatility in case of Stock Option
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