Historical volatility
The standard deviation of past price returns, usually annualized, showing how much a security has actually moved historically.
What the numbers mean
The lookback sets how many bars of returns feed the standard deviation; the annualisation factor, usually the square root of 252 trading days, restates it as a yearly percentage so it can be compared with implied volatility.
- 10, 20 or 30 days — the return window
- √252 — the annualisation factor, since there are about 252 trading days in a year
- 252 — a full-year lookback for long-run comparison
- Quoted as an annualised percentage so it can be set against implied volatility
How it is used
Used as the benchmark for whether options look expensive: comparing historical volatility with implied volatility is the core of that judgement, and volatility's tendency to cluster makes recent readings informative about the near term.
- Comparing HV with IV → the core judgement on whether options look expensive
- HV at multi-month lows → compression; large moves tend to follow quiet stretches
- HV spiking → a regime change worth reducing size into
How it relates to everything else
Historical volatility is the realised counterpart to implied volatility, and the gap between them is where options traders make their living. It is also the same standard-deviation calculation that sets Bollinger Band width, just annualised and expressed as a percentage.
- HV vs IV → realised versus priced; the central options comparison
- Same arithmetic as standard deviation and Bollinger width, annualised
- Backward-looking, and it assumes returns are normal — they are not
What to watch for
It is entirely backward-looking and assumes returns behave normally, which they do not — real markets produce far more extreme days than the model expects.