Picture a session where the index drops hard in the morning, recovers through the afternoon and closes where it started. On a daily chart it is a flat day. For anyone holding a same-day option it was anything but. How you measure realized volatility decides which of those descriptions you get.
Close-to-close
The standard measure takes the change from one day’s close to the next and calculates how variable those changes have been over a period. It is simple and it is the convention behind most published figures. Realized versus implied volatility uses it.
Its weakness is that it sees one price a day. Everything between two closes is invisible to it. The round-trip session above counts as zero movement.
Range-based measures
Another family of measures uses the day’s high and low, sometimes with the open and close as well. These capture how far price traveled inside the session. The round-trip day registers as a volatile one, because the distance from high to low was large.
Average true range is the everyday version of this idea. It measures the typical size of a day’s range, gaps included, in points and not as an annual percentage.
When the two disagree
They diverge most in markets that swing and revert. A stretch of wide ranges with small net changes shows low close-to-close volatility and high range-based volatility. A stretch of steady one-way days shows the opposite: modest ranges, and closes that keep moving.
The first pattern is common when the index is caught between heavy positioning levels and news keeps pushing it around inside them. The second is a trend.
Which one options price
An option held to expiry pays on where the index finishes. For that holder, the path matters less than the end point. A dealer hedging the option through the day is exposed to the path, and so is any trader who exits before the close.
This is why a same-day option can be expensive on a day that ends flat. The premium was payment for the swings on the way, which the hedger had to trade through. Judging that premium against the close-to-close result alone understates what the day delivered.
Choosing the measure
Match the measure to the holding period. For positions held across days, close-to-close volatility is the relevant history. For intraday positions, the range is. Comparing implied volatility with the wrong one makes options look richer or cheaper than they are for the trade in hand.
The first part of the session is often a fair early read on the day’s range, the idea in the opening range as a volatility gauge.
Where NoVo fits
The Trader dashboard shows the expected move for SPY, QQQ and IWM, the range the option market priced for the session, beside net GEX, the gamma flip and the walls. Dr. NoVo’s written reads describe where price sits inside that range as the day develops.