Volatility cone
How much a stock has actually moved over each option horizon in the last five years — the range an implied volatility can be judged against.
Formula
Realized vol(h) = standard deviation of daily log returns over h sessions × √252
Inputs
- Horizons. 5, 10, 21, 42, 63, 126, 189, 252, 378 and 504 sessions.
- Range. Every window of that length in the last five years, read at every 5th percentile.
How to read it
An at-the-money IV near the top of the cone at its own horizon prices more movement than the stock has usually delivered (options rich); near the bottom, less (options cheap).
How to use it
The reference that turns a volatility surface from a picture into a comparison.
Limitations
History, not a forecast: an earnings date or a change of regime inside the option's life can justify an IV above the whole cone. A horizon needs at least 60 windows of history.
In Kereon
Charts · Volatility Surface. From adjusted daily closes, so a split is not read as a crash. Where Cboe publishes a 30-day implied volatility index for the underlying (VIX for SPY, VXN for QQQ, GVZ for GLD, OVX for USO), its level, one-year range, rank and percentile are shown beside it.
Also called: vol cone, realized volatility cone, vxn, gvz, ovx.