Volatility in financial markets measures the magnitude of price changes over time and is typically expressed statistically as standard deviation or annualized percentage. High volatility means large and frequent price swings, which creates both larger potential profits and larger potential losses. Implied volatility, derived from options pricing, represents the market's expectation of future volatility rather than what has already happened — the VIX index tracks implied volatility on S&P 500 options and is commonly used as a market fear gauge. Historical or realized volatility measures actual price movements that have already occurred. Volatility regimes tend to cluster: low-volatility periods are often followed by more low volatility, and high-volatility spikes (like those during earnings announcements or macro events) tend to mean-revert. Understanding the current volatility regime is essential for position sizing, stop placement, and option strategies.
