How this number is made
Annualized volatility stretches a one-period standard deviation by the square root of the number of periods in a year. Trading days usually use 252. Weeks use 52. The stretch assumes each period is independent and volatility does not cluster. Markets break that assumption, so the yearly number is a convention, not a forecast.
- The volatility you type is already a standard deviation, not a high-low range.
- Do not use 365 on a series that skips weekends unless the series really has weekend moves.
Formula
Annualized volatility = period volatility × √(periods in a year).
Worked example
With the figures already in the form, annualized volatility is 15.87%.
Questions
Why 252?
There are about 252 weekdays when US stocks trade. Crypto that trades all week is closer to 365. Type the clock your series uses.
Is this the volatility to type into Black-Scholes?
Only if you believe the past period’s volatility is the right forward volatility. The model will not correct you.