When discussing volatility, some traders may learn that they are not always talking about the same type of volatility. A volatility of 25% can mean a variety of things. To prevent any future misunderstanding, it will be helpful to define the various types of volatility.
Historical volatility, always a good starting point for option valuation, is compiled by examining wide varieties of time periods that graph volatility data.
Forecast volatility is simply that, a forecast. Just as there are various services that offer directional forecasts, there are forecasts for volatility as well.
Future volatility is what every trader would like to know. It is the volatility that would best describe the future distribution of prices for an underlying contract.
Seasonal volatility is a volatility that many traders encounter. One example would be the increased volatility traders encounter during earnings season. Another would be the volatility in commodity markets that arises from seasonal weather conditions.
We could go on and on about volatility but we'll just keep the basics here for now. If you have any questions please do not hesitate to ask.
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