# Volatility Cone

Realized volatility at each horizon against its historical range, with today's implied volatility on top.

The **Volatility Cone** shows how volatile the market has been at different
horizons (from a few days to months) compared with its own history. The outer
band is the sample's maximum and minimum, the inner band the 25th to 75th
percentile, with the median in grey. The **current** realized volatility is
the cyan line and **ATM IV**, what options price, is orange. **Details** sets
the horizons and the history used (1 to 5 years), and lists each horizon's
realized volatility.

## Practical application

![Volatility Cone widget, illustrative example: realized volatility above its usual range after a volatile stretch](https://q-bitf.com/docs-img/volatility-cone.png "Illustrative example data, not a real session. NQ, 2-year sample: 30-day realized 23.53% against a median of 18.54%, ATM IV 21.82% (IV minus HV -1.71 points); 60- and 90-day realized above 31%.")

**Reading it.** Realized volatility is high at every horizon. At 30 days it is
**23.53%**, above the 75th percentile (20.7%) and well above the median
(18.54%). The longer windows are higher still: 31.2% at 60 days and 31.4% at
90, close to the top of their range, because they still contain a volatile
stretch from about two months ago. The shortest window, 10 days, has already
dropped to 21.1%. Options price **21.82%** at the money, **1.71 points below**
the 30-day realized.

**What it means.** The market is calming: recent moves are smaller than those
of the past two to three months, but they are still larger than normal. Options
are priced slightly below what the market has actually been doing.

**How to use it.**

- **Current line near the top of the cone:** moves are larger than usual;
  widen stops and size down.
- **Short windows falling below longer ones:** volatility is coming off its
  peak. Ranges tend to narrow from here.
- **IV below realized (negative IV − HV):** options are priced below recent
  movement. That is unusual, but realized volatility tends to settle after a
  volatile stretch, so it is not on its own a reason to buy options.
- **IV above realized** is the normal state: options usually price a little
  more movement than the market delivers. Only a wide gap marks them as
  expensive.