The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What does realized volatility mean?” Realized volatility is basically the volatility that actually occurs when you look at historical performance of a stock or an ETF or a security. Now, I relate this very much to paper profits and realized profits. If you have let’s say a position and an underlying security and you’re holding paper profits, but you don’t close it out until tomorrow and after tomorrow, we see a huge move down in the security, well, your realized profit might be lower than what you expected to get. And so, this same thing happens in options trading where we have implied volatility, the expectation that a stock is going to move and then we have realized volatility. You can actually track and see how much the stock actually moved historically relative to its expectation. This difference is really important because this is where our edge lies as an option seller,