Daily Options Report

In theory historical volatility is blind to the trend of the stock, thus it shouldn't be used to predict stock direction. For example, suppose HV is high and you think it will begin to come back down to its average. Does that have any influence on your outlook on the stock? In other words, if you think HV is going to drop, does that mean the stock price will drop also? If you subscribe to the notion that volatility is blind to trend, then the answer is no. Remember HV measures price movement, not price direction. HV can be moving down whether the stock price is rising or falling. Conversely, HV can be moving up whether the stock price is rising or falling. Although theory states that there is not necessarily a direct correlation between HV and price direction, in the real world there usually is a distinct relationship between HV and price direction.

Click here for balance of post.