when there is a rise in historical volatility a security s price will also move more than normal at this time there is an expectation that something will or has changed if the historical volatility is dropping on the other hand it means any uncertainty has been eliminated so things return to the way they were 
this calculation may be based on intraday changes but often measures movements based on the change from one closing price to the next depending on the intended duration of the options trade historical volatility can be measured in increments ranging anywhere from 10 to 180 trading days volatility and options pricingvolatility is a key variable in options pricing models estimating the extent to which the return of the underlying asset will fluctuate between now and the option s expiration volatility as expressed as a percentage coefficient within option pricing formulas arises from daily trading activities how volatility is measured will affect the value of the coefficient used 5volatility is also used to price options contracts using models like the black scholes or binomial tree models 6 more volatile underlying assets will translate to higher options premiums because with volatility there is a greater probability that the options will end up in the money at expiration options traders try to predict an asset s future volatility so the price of an option in the market reflects its implied volatility the greater the volatility the higher the market price of options contracts across the board other measures of volatilityone measure of the relative volatility of a particular stock to the market is its beta a beta approximates the overall volatility of a security s returns against the returns of a relevant benchmark usually the s p 500 is used for example a stock with a beta value of 1 1 has moved 110 for every 100 move in the benchmark based on price level conversely a stock with a beta of 0 9 has moved 90 for every 100 move in the underlying index 7market volatility can also be seen through the volatility index vix a numeric measure of equity market volatility the chicago board options exchange created the vix as a measure to gauge the 30 day expected volatility of the u s stock market derived from real time quote prices of s p 500 call and put options 8 it is effectively a gauge of future bets that investors and traders are making on the direction of the markets or individual securities a high reading on the vix implies a risky market traders can trade the vix using a variety of options and exchange traded products or they can use vix values to price certain derivative products tips for managing volatilityinvestors can find periods of high volatility to be distressing as prices can swing wildly or fall suddenly long term investors are best advised to ignore periods of short term volatility and stay the course this is because over the long run stock markets tend to rise meanwhile emotions like fear and greed which can become amplified in volatile markets can undermine your long term strategy some investors can use volatility as an opportunity to add to their portfolios by buying the dips when prices are relatively cheap you can also use hedging strategies to navigate volatility such as buying protective puts to limit downside losses without having to sell any shares but note that put options will also become pricier when volatility is higher example of volatilitysuppose that an investor is building a retirement portfolio since she is retiring within the next few years she s seeking stocks with low volatility and steady returns she considers two companies a more conservative investor may choose abc corp for their portfolio since it has less volatility and more predictable short term value 