Volatility in option trading

Volatility is the statistical measure of the riskiness of a given security. It tells how much the price of the underlying asset has moves/moving on a timeframe. The higher the volatility, the riskier the security.

Volatility Trading: Any security whose price moves, exhibits price volatility. Volatility trading is simply buying and selling the expected future volatility of the instrument. Rather than predicting whether the price of an asset will move up or down, volatility traders are concerned with how much movement, in any direction, will occur.

The most common way to trade volatility is via options. Anyways, There are two types of volatility an options trader need to be aware of –

  • Historical Volatility/Realized Volatility
  • Implied Volatility/Expected Volatility