What It Means
Historical volatility measures how much a stock's price has actually fluctuated over a past period — typically the last 30, 60, or 90 days — calculated from real closing prices rather than derived from option premiums.
How It Works
It's usually expressed as an annualized percentage, letting you compare a stable large-cap stock (low historical volatility) against a smaller, choppier one (high historical volatility) on the same scale. Traders use it as a sanity check against implied volatility: if implied volatility sits far above historical volatility, the options market is pricing in a bigger move than the stock has actually made recently, which can mean elevated event risk (like an upcoming earnings call) is being priced in.
Related Terms
- Implied Volatility (IV) — the forward-looking counterpart, derived from option prices rather than past price data