14 lines
848 B
Plaintext
14 lines
848 B
Plaintext
Standard Deviation and Historical
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Volatility
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When standard deviation is used in the context of historical volatility, it is
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annualized to state what the one-year volatility would be. Historical
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volatility is the annualized standard deviation of daily returns. This means
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that if a stock is trading at $100 a share and its historical volatility is 10
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percent, then about 68 percent of the occurrences (closing prices) are
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expected to fall between $90 and $110 during a one-year period (based on
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recent past performance).
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Simply put, historical volatility shows how volatile a stock has been
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based on price movements that have occurred in the past. Although option
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traders may study HV to make informed decisions as to the value of options
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traded on a stock, it is not a direct function of option prices. For this, we
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must look to implied volatility. |