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FIGURE 36-2. 
Sample stock chart. 
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Part VI: Measuring and Trading Volatllity 
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Its price movements have been less extreme in the near term. 
Again referring to Figure 36-2, note that shortly after point A, the stock jumped 
much higher over a short period of time. Price action like this increases the implied 
volatility dramatically. And, at the far right edge of the chart, the stock had stopped 
rising but was swinging back and forth in far more rapid fashion than it had been at 
most other points on the chart. Violent action in a back-and-forth manner can often 
produce a higher historical volatility reading that straight-line move can; it's just the 
way the numbers work out. So, by the far right edge of the chart, the 10-day histori­
cal volatility would have increased rather dramatically, while the longer-term meas­
ures wouldn't be so high because they would still contain the price action that 
occurred prior to point A. 
At the far right edge of Figure 36-2, these figures might apply: 
l 0-day historical volatility: 80% 
20-day historical volatility: 75% 
50-day historical volatility: 60% 
l 00-day historical volatility: 55% 
With this alignment of historical volatilities, one can see that the stock has been 
more volatile recently than in the more distant past. In Chapter 38 on the distribu­
tion of stock prices, we will discuss in some detail just which one, if any, of these his­
torical volatilities one should use as "the" historical volatility input into option and