Definition: It is a rate at which the price of a security increases or decreases. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease.
If the prices of a security fluctuate rapidly in a short time span, it is termed to have high volatility. If the prices of a security fluctuate slowly in a longer time span, it is termed to have low volatility.
Volatility measures the risk of a security. It is used in option trading as a formula to gauge the fluctuations in the price of the underlying assets. Volatility indicates the pricing behaviour of the security and helps estimate the fluctuations that may happen in a short period of time.