Volatility: Definition & Example

Volatility

How much and how fast a price moves up and down.

Volatility measures the size of price swings. High volatility means big, fast moves in both directions; low volatility means a calmer ride. It is the raw material of option premium: more volatility means fatter premium, and more risk. It is not the same as risk of loss, but the two often travel together.

For example

A stock that routinely swings 8% a day is highly volatile. Its options pay a lot, precisely because it can move against you just as fast.

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Volatility

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