Realized Volatility
A backward-looking measure of how much an asset's price actually fluctuated over a historical period, as distinct from implied volatility, which reflects the market's forward-looking expectation.
Realized volatility is a statistical measure, calculated from an asset's actual historical price movements over a specified past period, of how much that price genuinely fluctuated — typically expressed as the standard deviation of returns, annualized for easier comparison across different timeframes. It's a purely backward-looking, factual measurement of what volatility actually occurred, based entirely on observed price data.
Realized volatility is directly contrasted with implied volatility (see Kaavon's "Implied Volatility" glossary definition), which is derived from current options prices and reflects the market's forward-looking expectation of future volatility rather than a measurement of what already happened. Comparing the two is a common analytical technique: when implied volatility sits well above recent realized volatility, options are relatively more expensive to buy, since the market is pricing in more future price movement than has actually been occurring recently, and vice versa when implied volatility sits below realized volatility. "Realized volatility" and "historical volatility" (see Kaavon's "Historical Volatility" glossary definition) refer to the same measurement and are generally used interchangeably.
Examples
- An asset whose realized volatility over the past 30 days was unusually low might still have elevated implied volatility if the market expects a major upcoming event to increase future price swings.
- Comparing realized volatility against implied volatility is a common way traders gauge whether options are relatively cheap or expensive compared to an asset's recent actual price behavior.