Volatility Volatility is one of the most important factors in an option s price. It measures the amount by which an underlying asset is expected to fluctuate in a given period of time. It significantly impacts the price of an option s premium and heavily contributes to an option s time value. In basic terms, volatility can be viewed as the speed of change in the market, although you may prefer to think of it as market confusion. A stable market moves slowly.
Volatility measures the speed of change in the price of the underlying instrument or the option.
The higher the volatility, the more chance an option has of becoming profitable by expiration. That s why volatility is a primary determinant in the valuation of options premiums. There are options strategies that can be used to take advantage of either scenario. For example, on the first Friday of each month, the government releases the employment report. As soon as the report is released, a fluctuation in the bond market usually occurs.