Volatility
What is Historical Volatility (HV)?
The actual measured volatility of an asset's past price movements.
📖 Complete Definition
Historical volatility (also called realized volatility) measures how much an asset's price has actually moved in the past, typically calculated as the annualized standard deviation of daily returns. HV is backward-looking, unlike IV which is forward-looking. Comparing HV to IV helps identify if options are over or underpriced relative to actual movement.
📐 Formula
HV = σ × √252 (where σ is standard deviation of daily returns, 252 = trading days)
Examples
- →20-day HV of 25% means the stock moved about 25% annualized over the past 20 days
- →If IV is 40% but HV is 20%, options may be overpriced
❓ Frequently Asked Questions
How do I compare HV and IV?
When IV > HV, options are relatively expensive (good for selling). When IV < HV, options are relatively cheap (good for buying). This relationship often reverts to the mean.
🔗 Related Terms
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