Volatility

Volatility is simply the degree to which a price fluctuates. High volatility means large price swings; low volatility means small, steady movements. There are two main types: historical (realized) volatility measures past price movement, while implied volatility prices in expected future movement derived from options prices.

• Historical Volatility (HV) — Standard deviation of past returns. Backward-looking.
• Implied Volatility (IV) — Derived from options prices. Forward-looking expectations.
• VIX — The "fear index." Measures implied volatility of S&P 500 options. VIX > 30 = high fear.
• Volatility crush — IV drops after a known event (earnings, FDA decision). Options lose value.
• Volatility clustering — High-vol periods tend to be followed by more high-vol periods.