Volatility is the annualized standard deviation of returns.

What does that mean? Lets start with the definition of

returns. Returns are the log to the base n of the selected

price relatives. What's a price relative? A price relative

is the ratio of one price to another price.

It can be the ratio of the closing closing price on Monday

on the New York Stock exchange relative to the closing price

the week later. Or it could be the opening price relative to

the closing price on the same day.

People calculating volatility mostly use one day closing

prices as their price relative.

The selection of one day price relatives is quite arbitrary.

For the full article email John Olagues olagues@hotmail.com

The author, JOHN OLAGUES, is a former member of the Chicago Board Options Exchange and the Pacific Stock Exchange for over ten years. He offers a unique view of employee stock options from a trader’s standpoint rather than from the standpoint of an accountant, compensation planner or academic. To contact JOHN OLAGUES email olagues@hotmail.com and  see www.optionsforemployees.com.