What is volatility?

Volatility is a measure of the dispersion around a security's average return. High volatility means the prices during the measured period are widely spread out so the standard deviation is large, while low volatility the opposite. It is a general reflection of market uncertainty and tends to be inversely correlated with the US stock market.

Not only is volatility valuable for measuring market conditions, but the volatility index (VIX) also creates the basis for tradeable futures. VIX is calculated from the implied volatility in a basket of S&P 500 put and call options. The full steps for deriving VIX can be found in the Cboe's whitepaper. The Volatility ETF universe contains products that both allow you to express views on future VIX prices and trade low volatility indices to decrease risk in choppy markets.

Also included are triple levered long/short QQQ contracts, which produces 300%/-300% of the daily returns of the Nasdaq-100. Since Nasdaq-100 companies account for a large piece of the S&P 500, you can find signals in VIX products to trade QQQ with.


Factors Affecting Volatility: TVIX, VIXY, UVXY, SVXY(short)