Volatility
Volatility describes the degree to which an asset’s price changes over a given period.
● High volatility means the price moves up and down sharply or frequently.
● Low volatility means the price is steadier and changes less often.
In options trading, volatility is a key factor in pricing because it reflects the market’s expectations of potential future price movement. It can be measured in two ways:
● Historical volatility, which looks at past price movements.
● Implied volatility, which is based on current option prices and might represent what the market expects for the future.
Volatility does not indicate the direction of pricechanges
Why volatility matters to investors
Understanding volatility helps investors:
● Observe the potential range of price changes and associated risk
● See how volatility affects option premiums and pricing
● Consider how different levels of volatility interact with market conditions
● Recognise the potential impact on positions without implying guaranteed outcomes
Volatility is central to how markets behave.Recognising its impact provides context for option pricing and risk, but options may lose value, including the full premium paid, and may not be suitable for all investors.