Volatility

Volatility measures the amount by which an underlying asset is expected to fluctuate in a given period of time. It is generally measured by the annual standard deviation of the daily price changes in the asset.

The volatility of an underlying asset is a major contributing factor in determining an option contract's overall value. More volatile underlying assets tend to have higher option contract prices. This is because volatile underlying assets have the potential to increase or decrease in price quicker than less volatile underlying assets.