The constant jumps in the option sometimes do not give an opportunity to earn for an inexperienced trader, if only because few people think at the beginning of their exchange activity about such a concept as volatility, which we will discuss below.
Volatility definition
So what is volatility? Probably, everyone who took a course in higher mathematics already guesses what will be discussed in this article. But in fact, we will not go into complex quadratic formulas and try to consider this concept, rather, from a closer perspective to us, so to speak, everyday. 
Every day we are faced with fluctuations. It can be changes in price, exchange rates, but those involved in exchange trading are most familiar with such dynamics. Therefore, we can say that volatility is both low and "lazy" (in the event that a particular variable fluctuates within 1-2%), and active. Or, as it is also commonly called, progressive or regressive depending on the direction - in the event that its value in a short period of time reaches 10%.
Agree, if the dollar exchange rate per day changes by 6-7 Russian rubles, then this is very tangible and sometimes unpleasant, and what can we say about options on exchange trading ...
The dynamics of her behavior
Let's dwell in more detail on how this indicator can behave in modern unstable conditions. For a clearer understanding, we will try to explain how the volatility indicator can behave in the securities market, because it is there that it is most significant, visible and active.
It just so happened that we didn’t invent and we won’t cancel the main rule of exchange trading: if the price of shares stubbornly rises, sooner or later there will come a moment when it starts to go to zero. And it’s not necessary that the price reaches the coveted zero mark, but it will make the holders nervous.
That is, in practice, everything is quite simple for the observer position - as soon as the indicator of the industry market reaches its lowest level, it will certainly begin to grow in the near future, and the longer the price decreases or rises, the sooner the trend will begin in the opposite direction.
What is it for?
What is volatility for a modern stock market? This is an opportunity for traders to earn money. You can complain that your company’s shares have fallen sharply, and now it has no value, but all this is just a mistake - the indicator of market volatility does not depend on the trend line or the popularity of a particular issuer of securities. Therefore, while you are complaining about the low price of stocks, someone in the meantime acquires them and plans to make money on them as soon as their value rises - these are market laws.
Seriously, there would be no volatility, then there would be no exchange trading in general, they would simply not make any sense. Who, interestingly, could make money on stocks that absolutely do not change in price?
In any case, the behavior of the curve is not simple, of course, but it is still calculated, which we will talk about later. In the meantime, it’s worthwhile to understand that the widest ranges of a variable occur when the index is already on the verge of a positive trend, the most important thing is to be able to use it correctly.
Why it happens?
You may be surprised, but I want to compare the volatility indicator with a living creature that feels the emotions of traders, since in practice it is these that are projected onto the exchange trading market. The wider the scope of the variable, the more lively and emotionally the bidding begins - everyone wants to grab their tidbit, buy up more shares and how to earn money on them.
But on the part of observers, we understand very well that this cannot go on indefinitely, and sooner or later people run out of money, and there’s nothing more to buy securities. The market subsides. Well, volatility, respectively, freezes at some point until better times and to a more lively human activity.
And then comes the moment when the tension begins to rise again. It is clear that the stock cannot stay in the same price range for a long time, and traders again begin to get nervous and strain when the fluctuations begin. And at the peak of emotions, it costs a price at least a little atypical to change, then lively trading will begin.
Historical volatility
It is enough for a novice trader to understand what volatility is, in two aspects - historical and implied.
Do not be afraid of the concept of “historical”, this does not mean at all that we will now go into the details of the bidding at the beginning of the twentieth century or something like that. In fact, this type of volatility only requires knowing about the value variables of a particular stock in the entire history of its existence. On any of these charts, we can see how the volatility index fluctuates, and catch the trend. There are always wider leaps, alternating with a few small ones, well, but this or that stock often (if, of course, the company has not declared bankrupt) ends its life in the same value range in which it started.
Implied volatility
But what is the concept of market volatility in the implied aspect? This is already a direct real fluctuation in stock prices, which directly depends on the activity of existing traders. The buyer can afford such activity, but the seller does not particularly benefit from this trend.
Thus, the value of a security changes due to the mutual and coordinated activity of all market participants, moreover, it should be understood that the stock will exist in a certain range as long as there is demand for it, which is important for any trader to understand.
Implied volatility is measured as a percentage, which takes into account the current and previous price ranges, and those who are able to conduct at least some calculations can predict its further trend.
Volatility calculation
It is clear that the volatility of a stock with a period of 365 days is much easier to calculate, but in practice it's a little different - few people trade such long-term securities. As a rule, the life of one cycle of a stock for a standard trader ranges from 60 to 90 days. And it doesn’t matter, since a rough calculation formula can still be derived.
Thus, one standard deviation can be calculated by the formula:
- stock price x current volatility x (number of days before expiration)0,5/ 19,105, where in the denominator is the root of the total number of days in a year.
Do not forget that this calculation does not give absolute accuracy, but it still helps to identify a certain tendency.
In addition, there is also an ATR index, which is plotted on the graph of price fluctuations of a particular stock. It should be remembered that when using this indicator, the opening of a transaction should be postponed until the moment when the volatility of currency pairs reaches the middle of the existing range.
How to deal with the volatility of your own option?
What is volatility for a trader? This is an opportunity to win, but also a risk of losing at the auction.In order not to become food for stock trading sharks, a beginner should be able to calculate not only the fluctuation coefficient, but also to predict when these fluctuations can begin. And only in this case the option volatility will not scare you.
But do not forget that in practice everything is somewhat different. Sometimes it happens that the value of a security falls to a negative mark, while it can grow to infinity. It is clear that there is much more positive potential, but nevertheless, in real trading, one jump up may account for two jumps down.
Currency volatility
And some more “household” information about the concept that we encounter every day, without even trading on the stock market. This is the volatility of the foreign exchange market. This is probably the most burning issue now, because in modern market conditions we are all a little tired of the constant jumps in quotes.
Of course, the dynamics of this indicator is almost impossible to calculate, unfortunately, and we can only complain and tolerate. But, as we all noticed, the tendency of foreign currency volatility is observed to be positive (although the forecast is not so positive for us) - one significant upward jump in amplitude leads to several cheap small drops.
Therefore, we can conclude that if you bother, volatility can be seen everywhere - in the foreign exchange market, in the grocery store and, of course, where this concept originated - in stock trading.
