T2W Bot

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I’ve probably mentioned the term volatility in every article I’ve written about options trading. Everyone probably has an intuitive feel as to what volatility means, for example looking at the following charts of stocks ABC and XYZ, it’s pretty clear which one is more volatile. If you think it’s XYZ, you probably should hold off a little before you start trading options (or anything else for that matter.)

So how do we define volatility and how do we measure it? In general terms, volatility is the rate that the price of a security moves up or down. It is measured by the annual standard deviation of the daily price changes in the security. Digging down a little deeper, the standard deviation is calculated by taking the square root of the average of the squared differences between the daily percentage rates of return and the average of the daily percentage rates of return. That’s a mouthful and it doesn’t even...

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