What is Volatility?
The magnitude of price fluctuations over time.
Formal Definition
Volatility measures the dispersion of returns, usually as the annualized standard deviation of historical returns or as the level implied by option prices (implied volatility, tracked by the VIX). Higher volatility means larger swings in both directions, raising upside potential and downside risk alike.
In Simple Terms
It is how wildly a price bounces around. A calm stock drifts a little each day; a volatile one lurches up and down, which means bigger potential gains but also bigger potential losses.
Example
A stock with annualized volatility of 40% experiences much larger daily swings than one at 15%.