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The magnitude of price (or yield) changes over a predefined period of time. The amount by which an underlying instrument fluctuates in a given period of time. Also, the gross price movement over a specified period of time given a minimum value unit.

Some stocks are very stable while others are very volatile. The more volatile the stock, the more options will cost because the more likely it is that a trader might make money. Volatility is measured by the beta factor—you need a stock with a high beta in order to get the options to fluctuate in value, and if they don’t fluctuate it is almost impossible to trade them.

Additional Comments:

Options often increase in price when there is a rise in volatility even if the price of the underlying doesn't move anywhere.

Volatility is a primary determinant in the valuation of options.

There are two main types of volatility: historical and implied.

Related Terms:

The sensitivity of an option price to volatility. Typically, options increase in value during periods of ...

A means of measuring the volatility of a security or portfolio of securities in comparison with ...

Volatility Stops
Monitoring implied volatility is critical in long neutral delta trading. Check the current volatility of the ...

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