Volatility is the statistical measure of how much an asset's price swings up and down. High volatility means wild price swings (crypto, penny stocks); low volatility means steady prices (Treasury bonds, blue-chip stocks). It is both a measure of risk and a trading opportunity.
The VIX (often called the "Fear Index") measures expected volatility of the S&P 500 over the next 30 days. A VIX below 15 signals calm markets; above 30 indicates fear and uncertainty. During the COVID crash in March 2020, the VIX spiked to 82.69 — its highest level ever.
Traders use implied volatility to price options — higher volatility means more expensive options premiums. Historical volatility looks at past price movements; implied volatility reflects market expectations. The key insight: volatility is not the same as direction. A stock can be highly volatile while trending upward.