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What does the term "Trading Volatility" mean?

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8/14/11
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Hey All, I came across this term (trading volatility) in a book not long ago and have heard it referred to by a co-worker but I'm not sure exactly what that means. In my limited knowledge, volatility is an attribute of a financial asset not an actual asset itself, so i'm a bit baffled as to what this mean. Yes I did google this term but didn't come away with a very clear understanding. Was hoping some one could explain it in a manner a beginner could understand. Thanks.
 
There's a lot of different contexts that vol gets used in. In the equity derivatives world, vol is how much a stock moves around. It is also a way of quoting a price on an option. Black-scholes implies that if a stock can be expected to realize 20% volatility while moving on a binomial distribution, a call or put should have a certain price given a strike and expiry.
 
oh man, as long as somebody is willing to make you a price, you can bet on just about anything including volatility.
 
Trading Volatility is nothing but the inconsistent state of a Trading Stock Exchange.
This Volatility will be very high during Budget and Election times.
 
thanks for the response everyone, but i'm still not able to get the gist of what this term refers to. Do people actually make a profit depending on how volatile an asset is?
 
Trading volatility can mean any play that involves betting for or against the volatility of a certain instrument, even the volatility of volatility if you would like. While vanilla options are also a way to trade volatility, products such as volatility swaps and variance swaps allow for trading volatility directly as if it were an asset class of its own. In short, yes, people can actually make or lose money depending on how volatile an asset is, whether it be trading volatility directly or indirectly.
 
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an instrument that is highly volatile is an instrument that it's price jumps up and down rapidly, as opposed to one that moves slow and steady..

the more volatile it is, and the longer that it has oscillated wildly in a particular range might, for example, allow one to place a quick trade inside of said range of movement.
 
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