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Author Message  superboot Member Username: superboot Post Number: 56 Registered: 07-2003 Rating: N/A Votes: 0 Tuesday, August 22, 2006 - 10:09 pm:     Hi all, I am in the process of setting up a system to trade options - writing covered calls. Part of my strategy is to identify stocks that, based on their historical behaviour, are likely trend in a relatively stable fashion. I think the volatility indicator is the one I am after, however I am trying to get my head around exactly what it tells me. Obviously, a lower % indicates a lower chance of volatile behaviour. 1. If I have a volatility value of 10% what is this really telling me? 2. What should I be setting the period to? 30, 60 or 125 days? 3. Could I also use ATR? I have read the link on the site and some other web sites but I am still unsure.... Any comments welcome. Cheers Darcy  superboot Member Username: superboot Post Number: 57 Registered: 07-2003 Rating: N/A Votes: 0 Wednesday, August 23, 2006 - 10:40 pm:     I think I have found the answers to some of my questions - see below:- Volatility measures the price or yield movement of a security in percentage terms. Historical volatility measures the historical price or yield movement of a security over a given number of historical days. If a given stock had a 30 day volatility of 10% we could interpret this number as follows – the average size of movement of the daily price of the given stock over the last 30 days (previous 30 business days), if annualized, is 10%. Another way of looking at the number is that the price movement of the stock over the past 30 days predicts that the given stock could trade 10% higher or lower than its current price over the next year (250 business days). To add some extra context to the previous statement, we would modify our interpretation slightly to include the idea that we could expect 10% change over the next year, higher or lower, 67% of the time (1 standard deviation). Hope this helps anyone else who might be unsure. Cheers Darcy

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