What is Volatility ??

Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. Whereas a lower volatility would mean that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

There are two type of volatility measure

1- Historical Volatility
Based on the Historical Return from the Index. Its shows the past uncertainty in the market. Some times it is called as realized volatility.

2- Implied Volatility (IV)
This is the current Volatility in the market. we can calculate it by using Black-Scholes Model. It shows the current uncertainty in the market. If the market is volatile the people would be ready to pay more than the normal intrinsic plus time value, this is called High IV and v-a-v.

When the market crashes then the IV in in the market tends to increase and when the market touches to their high level this IV tends to decrease, Because people who have long position they come in the market and ready to pay any price to cover their position.