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VIDEOMarket Lingo: Volatility
Volatility refers to movement in asset prices.
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Expanding on the Minyanville dictionary to explain the jargon frequently used by Minyanville professors on the Buzz.
MV professors frequently discuss market volatility. Volatility (or just 'vol') refers to price movement.
Volatility comes in two flavors. Historical vol reflects past movement in a security's price (often expressed in terms of standard deviation). There is also implied vol, which represents market participants' estimate of future movement of prices derived from option prices.
Implied vols are useful because they represent a forecast of anticipated future movement in prices. Market participants pay more for options when they think prices will move alot.
As a general rule, low volatility and extreme option selling reflect complacency; high vols and extreme option buying reflect fear. Popular measures of market volatility include the VIX and VXO which both reflect implied vol in S&P index options.
Look up other terms at the Market Lingo Library
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