Historical volatility (HV) is a backward-looking metric that measures how much movement a stock has experienced over a set time frame. While there are several different methods by which HV can be calculated, it's most common to take the standard deviation of the difference between the stock's daily price changes compared to the mean value of the stock during that same lookback period.
It's worth noting that historical volatility is based on changes in the stock's price from one day's close to the next, and so dramatic intraday swings that fade by the close are not included in this metric.
In options trading, HV is used as an approximate guide for how much volatility can be expected from the stock going forward. Specifically, traders often look at a stock's HV to determine whether or not options are pricing in a "fair" amount of future volatility. Of course, since this is inherently an apples-to-oranges comparison, historical volatility is not always an accurate predictor of implied (or forward-looking) volatility.
When comparing historical volatility to implied volatility, or IV, remember to measure comparable periods of time. For example, if you're gauging IV on an option with two months until expiration, the appropriate comparison would be to a two-month HV reading. Generally speaking, one calendar month includes an average of about 21 trading days.
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