Understanding the Four Measures of Volatility By Scott Rothbort

Updated from 3/8/2007 at 2:15 p.m. EST

“Volatility” is a term that is increasingly interjected into financial market commentary by the press and professionals. In fact, Bloomberg Radio has a daily “Volatility Report.” While the term is being thrown around with a seemingly high degree of expertise, I find that the concept is not well understood by most commentators and the average investor. This module of TheStreet University will cover the four main types of volatility measures:

◾historical volatility;
◾implied volatility;
◾the volatility index; and
◾intraday volatility.

Type 1: Historical Volatility

Volatility in its most basic form represents daily changes in stock prices. We call this historical volatility (or historic volatility) and it is the starting point for understanding volatility in the greater sense. Historic volatility is the standard deviation of the change in price of a stock or other financial instrument relative to its historic price over a period of time. That sounds quite eloquent but for the average investor who does not command an intimate knowledge of statistics, the definition is most overwhelming.

Think of a Pendulum

To help you visualize the concept of volatility, think of a pendulum like in the picture below. The pendulum is constructed from a steel ball, attached to a rope and then suspended from a ceiling.

http://www.thestreet.com/content/image/38564.include

The pendulum starts at the resting state when our ball is at point 2 (the mean). If you raise the ball to point 1 and let it go, the ball would then swing from point 1 to point 3. Over time that ball will swing back and forth always passing though point 2. If this were a stock, the difference in distance from point 1 to point 2 or from point 2 to point 3 represents the volatility in the movement of the stock price.

So as not to get into any trouble with physicists out there, the formulas for standard deviation and movement of a pendulum are different and I am not equating the two from a statistical perspective. Rather, I am only using the pendulum as a visual aide. Stocks with a swing that is greater from point 1 to point 2 vs. that of another stock will have a higher volatility than the other stock.

Now imagine a wind hitting the metal ball. The force of that wind will increase a stock’s volatility. Market corrections, increases in uncertainty or other causal factors of risk will be the wind that shifts volatility higher. Say that there is no wind, but rather calm over the markets. Since there is no outside force to apply motion to the pendulum, the arc of the movement from point 1 to point 3 will decrease. This is when volatility declines. Some call this complacency, but it is generally viewed as a market with low or declining volatility.

Source : http://www.thestreet.com

TERRAINS@Atv006kiranraj

T- Trade
E-Execute
R-Review
R-Rate
A- Analyse
I-Indulge
N-Nudge
S-Sacrament

Terrain , this encourages me to take up this training initiative for StockMarkets, to operate as a consultant, to work on development as a trader, on trades & trade offs.

discuss on log about leverage, per se quid pro quo.

Ms KiranRaj SP
Sole Proprietor / owner / Director

Adventure Terrain Ventures.

Risk-Based Testing and Metrics [article] Risk Analysis Fundamentals and Metrics for Software Testing By TechWell Contributor – July 19, 2001

Summary:

Risk-based testing is reviewed and presented as a case study using it on a system test for a retail banking application with complex test requirements. Test documentation produced prior to test execution was kept to a minimum with responsibility passed to the individual tester. To support this approach, progress tracking metrics were used to track actual progress made and to calculate the resources required to complete the test activities.

Risk-based testing is reviewed and presented as a case study using it on a system test for a retail banking application with complex test requirements. Test documentation produced prior to test execution was kept to a minimum with responsibility passed to the individual tester. To support this approach, progress tracking metrics were used to track actual progress made and to calculate the resources required to complete the test activities.

Want to Go From MBA to CEO? Executives Will Need These Skills in 2039 By Paul Leinwand and Gary L. Neilson August 29, 2014

Good news for today’s MBA grads: The share of large company chief executives with graduate business degrees has grown nearly 50 percent in the past 10 years. But don’t start decorating your corner office yet. There’s a lot to learn before you’re ready to take the CEO chair.

Digitization and globalization will change industries in ways we can just begin to imagine today. Everything will move faster—people, teams, trends, portfolios, and competitors. Companies will find it harder to meaningfully differentiate themselves, and they will need to make complex trade-offs when deciding where to invest for growth.

Future CEOs will have be comfortable working in a reconfigured C-suite. A new role, that of chief resources officer, will probably evolve from today’s chief human resources officer. This person will help the company respond to shortages of natural resources, shifting demographics in the workforce, and all other non-financial resources. And tomorrow’s CEO is likelier than ever to be female: We anticipate that about a third of 2040’s incoming CEOs at large public companies will be women, up from just 3 percent today.

The average CEO starts the job at 52. If you’re 27—the average age of a Harvard MBA—that gives you 25 years to prepare. Here’s what we think CEOs will encounter in 2039, as well as five areas in which you can start building skills to help you succeed as one of the CEOs of tomorrow:

Develop a strategy and execute it.
Possible strategies will come and go quickly. Many will be unfamiliar, so it will be harder than ever for CEOs to find the right balance between attractive opportunities and those their companies can win.

Most companies don’t align strategy and execution well at all. It will be your job to fix this. The most successful strategies are built on what your company is able to do better than any other—its handful of differentiating capabilities. Learn how to define your company by what it does, not what it sells. Identify the capabilities core to that identity, use them as a filter for choosing opportunities, and ensure that the entire organization delivers on that promise.

Manage resources as strategic investments.
A company can’t thrive without putting resources toward what matters most—and that’s not happening today. As CEO, you will need to realize that allocating resources equally across the board is not a winning formula. Treat costs as investments and budgeting as an opportunity to align your company more closely to your strategy. Outsource or team up to accomplish the many tasks your company doesn’t need to do better than others. Learn to focus more money and time than your competitors do on the few differentiating capabilities that matter most to your success, and cut back drastically everywhere else.

Build strong, flexible, teams from across the enterprise.
Every distinctive capability relies on contributions from many different functions, such as sales, marketing, IT, distribution, legal, and so on. Think of Apple’s (AAPL)intuitive interface and design capabilities or Amazon’s (AMZN)distribution and data analytics. Integrating all these functions is a huge task and one most companies struggle with today.

As CEO, you and your executive team will need to ensure that your people work together in a coherent system and continuously deliver on and improve your company’s few distinctive capabilities as the marketplace changes. All this will require you to master the architecture of collaboration, calling on empathy, emotional intelligence, and long experience on different kinds of teams.

Be a great connector.
The vast majority of executives say their company’s overall business strategy isn’t well understood across the company and that it only moderately guides decision-making.

To get your company out of that hole, you’ll need to be a master communicator. In a more transparent, always-on world, with more stakeholders interested and invested in what your company is up to, you’ll need to communicate extensively. You’ll need to build wide-ranging partnerships and other links across enterprises. These might be formal links with other companies that contribute to your products or services, longstanding partnerships with non-governmental organizations to provide social goods, or building relationships with your industry’s regulators around the globe. Doing all this will require extraordinary listening, speaking, writing, and engagement abilities. Hone those skills in every activity you undertake.

Deploy technology as a competitive advantage.
Technology is already a disruptive force changing the structure of most industries. It will only become more powerful. You, as a CEO, will need to have a deep understanding of IT across the enterprise—far greater than any present-day CEO. You’ll also need to be expert in flexible digital business models that allow you to constantly test, improve, and change your offerings, consumer technologies that shape customer engagement, and data analytics that surpass today’s Big Data.

Luckily, many of you are already steeped in technology. The key here is to stay that way and to ensure you are expert in the technologies most crucial to your company’s differentiating capabilities and most likely to disrupt your industry.

Being a CEO is a big job, and by 2040 it will only get bigger. Focusing on developing skills in these five areas should prepare you well for the corner office.

SOURCE : http://www.bloomberg.com

The satire of the trades

Story//

This story is part of an ancient Egyptian text known as ‘The teaching of Duaf’s son Khety’. A father is taking his son to scribe school where the boy will learn how to read and write. The father is telling his son why being a scribe is the best profession in the world. He emphasises how good the life of a scribe is by comparing it to the lives of craftsmen and others.

Although the father speaks badly of the other professions, he probably does not mean it as strongly as it sounds. More likely, he is making it seem that life is very bad for other people so that he can convince his son to become a scribe

Story//

The teaching of Duaf’s son Khety ‘

‘I will make you love writing more than your mother,
I will show its beauties to you;
Now, it is greater than any trade,
There is not one like it in the land

Story//

The teaching of Duaf’s son Khety ‘


Metal-workers.
…I have seen the metal-worker working
At the mouth of his furnace;
With fingers like the stuff of a crocodile
He stinks more than fish eggs.

Story//

The teaching of Duaf’s son Khety ‘


Carpenters working.
The carpenter who uses an adze,
He is more tired than a worker in the fields;
His field is the wood, his hoe the adze.
His work is endless…

Story//

The teaching of Duaf’s son Khety ‘


Jewellery workshop.
The jeweller drills with his chisel
In different kinds of stone;
Once he is done with the inlay of the eyes
His arms are weary, he is tired;
Sitting down at sunset,
His knees and back ache.

Story//

The teaching of Duaf’s son Khety ‘


Razor, comb, tweezers and other grooming tools.
The barber is still shaving at the end of the day,
To the town he takes himself,
To his corner he takes himself,
From street to street he takes himself
To search for people to shave.
He works with his arms to fill his belly,
Like a bee which can only eat as it has worked.

Story//

The teaching of Duaf’s son Khety ‘


A statue of a scribe.
Look, no trade is free from a director,
Except the scribe’s: he is the director.
But if you know writings, it will be better for you,
More than these trades I have shown you

11 or 12 Things I Learned About Life While Daytrading Millions of Dollars -by James Altucher

I was a day trader for many years, and it almost killed me.

I made money by making profits on my own money and also taking a percentage of the profits for the people I traded for. I traded up to $40 million or $50 million a day at my peak. I did this from 2001 to 2004.

I learned about day trading but I also learned a lot about myself and what I was good at, what I was horrible at, and what I was psychotic at. Things that had nothing to do with day trading.

Day trading is the best job in the world on the days you make money. You make a trade, then maybe 20 minutes later you are out of the trade with a profit, and for the rest of the day you think about how much money you made.

It’s the worst job in the world on a bad day. I would make a trade, it would go against me, and then I wanted my heart to stop so my blood would stop thumping so loudly.

I did it for years, though, because I was unemployable in every other way.

Here’s what I learned. All of these lessons I will certainly use today, many years after I stopped day trading.

A) You can’t predict the future. Everyone thinks they can. But they can’t.

This applies not just to trading but everything. You could be married for 10 years and the next thing you know you are divorced and you would not have predicted that.

You could be healthy all your life and drink your vegetables and exercise and reduce stress, and a year later you could be dead from cancer.

You’d have much less stress if you let go of trying to predict the future.

You can always seek to increase the odds in your favor. if I don’t jump off bridges, for instance, it’s more likely I’ll be alive a year from now. But certainly a path to unhappiness is thinking the future can be predicted and controlled.

B) Hope is not a strategy.

If you get to the point where you “hope” you don’t get ruined, then you did something wrong beforehand.

For instance, if you plan a wedding outside and you don’t have a backup plan in case it rains, then you probably mis-planned your wedding, unless you are getting married in a desert.

“Hoping” is not a bad thing. I hope that every day my life goes perfectly.

But if hoping is the only thing I’m relying on, then it means I didn’t really look at all the possible outcomes of something that was important to me.

C) Uncertainty is your best friend.

A hundred percent of opportunities in life are created because people are uncertain about almost everything in their lives.

We are constantly trying to close the enormous gap between the things we are certain about and the things we are uncertain about, and almost every invention, product, Internet service, book, whatever has been created to help us close that gap.

Sometimes this is hard. If your husband betrays and leaves you, you often feel like crawling on the floor and burning all the self-help books. They all lied.

It’s hard to feel “in the now” or to “positive think” when life feels like it’s over. I’ve tried. For me it’s too hard.

But at the very least you can say…”help me.” You can say it to your close friends. You can say it something inside of yourself.

“Help me” is the most powerful, and most forgotten, prayer.

D) Taking risks versus reducing risk.

Some people take too many risks and they go bankrupt. This happened to me. And sometimes people are too cautious and don’t take enough risks.

When I first started day trading, I was so afraid of risk that if I had a small profit, I’d end the trade. But then I would take big losses and that would wipe out all my profits.

The key is that you can take larger and larger risks if you work on better and better ways to deal with those risks.

For instance, I might be able to risk marrying someone if I know she is not a hard-core drug addict who regularly betrays the people she is close to.

I can risk driving without a license if I always stay below the speed limit (I know this is a stupid risk, but still). Once you have a method of reducing risks, it’s easier to make trades or decisions about anything.

E) Diversification.

Often I get emails, “I really want ONE job but they don’t seem to want me and now I’m miserable. How can I get that job?”

Well…you can’t.

And you’re going to be unhappy. You can’t wish yourself a job.

When I was raising money to day trade, I probably contacted over 1,000 people. When I was starting an Internet business I started over a dozen Internet businesses and watched all of them fail but one. When I was trying to sell my Internet business I contacted over a dozen companies (although Google broke my heart – damn you Google!).

When I wanted to get married, I went on lots of dates. Claudia’s approach was even smarter – she wouldn’t waste time with dinners. She would only go to tea with guys. Within the first 20 seconds you know if you are attracted. So keep it to a tea.

F) Say “no.”

In day trading, if something is not working out, even if your heart wants it to work out, you have to say “No” and cut your losses.

If a business relationship is not working out, don’t put more energy and time into it.

There is a cognitive bias called “committment bias.” We think because we’ve already put time and energy (or money) into something that we have to stick with it. But this is just a mental bias. Say no to it.

You have to decide every moment if this is the situation you want to be in.

Just because you were in the situation a moment ago, or yesterday, or for 10 years, doesn’t mean the situation is right for you anymore.

G) Health.

Day trading pulls everything out of you. It sucks the soul out of your body, blends it up, and then explodes. It doesn’t turn into a nice smoothie. It explodes.

So you have to take care of yourself. If you don’t sleep enough, if you don’t eat well, exercise, be around positive people, be grateful for what you have, blah blah blah, you will lose all of your money and go bankrupt.

And obviously, this applies to everything else in life. Every day, what small thing can you do to become a slightly better you?

The reason we get so attracted to “safe” cubicle jobs is that the pain is more subtle and sneaks up on us. It’s not the blender-drama of day trading so the need for health on a daily basis doesn’t seem as important. But it is.

H) Laughter.

The only way to survive is to laugh. There’s that saying: “Man makes plans but God laughs.” Well, you might as well be on the same side as God.

I) “This is crazy” means you’re crazy.

I’ve seen it a million times. Guy makes a trade. The market goes against him. He says “this is crazy” and puts more money into the trade. And then he loses all his money and goes crazy. I’ve had to talk people off the ledge or tell them to put the gun down.

The market is never crazy. The world is never crazy. And I will go so far as to say that your girlfriend who just lied to you about where she spent the night is not crazy.

I only care about you. And you’re effin’ crazy if you thought the world was going to line up any other way than the way it lined up.

Tough on you.

I know when I feel like, “ugh, this situation is insane” that the first place I need to look is at me.

I am insane.

J) It doesn’t matter if a trade (or a day, or a life) is good or bad.

Good and bad days happen. But life is about a billion little moments that add up to all the things around you. If you let one of those moments have too much control then you are bound to be mostly miserable.

I was mostly miserable during the period I was day trading. I let that aspect of my life take control. So I stopped focusing on being a good husband, a good father, a good friend, a good anything.

All of my other constituencies went to hell.

I would have nightmares. I would lose sleep. I would wake up many mornings and go to the church across the street so I could be by myself and pray. What would I pray? “Jesus, please make the markets go in my direction today.”

I’m Jewish. Nobody answered my prayers.

K) It’s never about the money.

Every day I get emails like, “Can you show me how to day trade?”

“NO!”

I know a thousand day traders and only two that won’t go bankrupt. So what makes anyone think they will have an edge? How many people listen to me?

Zero.

How come?

Because people are sick of their lives, their relationships, their jobs, and all the lies that have been told to them ever since they learned how to walk.

They want freedom from the BS.

I get it.

Day trading is the dream. You can make enough money to not care. To do it from anywhere. To be happy.

It won’t work. But people don’t want to believe it. Most people think they have that one special something that will make it work for them.

And it’s true – they do have that one special something. But you can’t get there by day trading first. You can skip right to the being happy part. You can skip right to being free.

But we never learned that. We were taught we had to do something first to earn freedom. We were taught that suffering was the currency to buy happiness.

Okay, go do it. Then cry about it. Then get scared. Then curse the craziness. Then cry more. None of that will make you happy.

Then read this blog post again. Not because it will make you happy. But because I like when people read my posts.

And laugh.