It is a long held belief the stock market world that by investing in risky stocks, you will receive a higher pay out when everything clears. This common ideal is known in the business world as stock market volatility. Stock market volatility is considered good investing practice by some, while others view it as a major risk that should be avoided at all cost. However, the question still remains; is stock market volatility good or bad for the average investor?
The answer to this question depends on several factors, but let’s first look at the true meaning of stock market volatility for a better understanding. Stock market volatility is primarily concerned different up and down fluctuations that often occur in the stock market. Volatility is a term used to measure how low or how high the fluctuations are. For example, a sudden rise in the stock market is considered high volatility, whereas a low or normal stock market has reduced volatility.
Other aspects of stock market volatility are option pricing and premiums. An increase in the option pricing will lead to an increase in stock market volatility, which will in turn produce a higher premium. If the stock market volatility is reduced, then so will the premium.
There are also two types of stock market volatility to consider before you start your trading; implied and historical volatility. Implied volatility is calculated by considering what is currently happening to the asset and what may happen to it in the near future. Historical volatility is the average of different volatility measurements over a certain period of time. Historical volatility records is the most common way to check for stock market volatility patterns.
Even the best penny stock alerts often have the highest volatility in the stock market. This can be a good (or bad thing) depending on your investing style and time frame. Day traders usually love this volatility as it allows them to enter/exit trades quickly and easily within a short period. The biggest problem with these trading instruments is knowing what penny stocks to buy. Reliable financial information is extremely limited as most companies are not required to file their financial statements with the SEC and there are no analysts covering stocks priced this low. Technical analysis seems to be the most popular way to trade these low priced plays. Growth Penny Stock Picks is a good example of a website that sends it members some great penny stocks to watch throughout the day to help traders benefit from this volatility.
After a bit of background information on stock market volatility, option pricing, and premiums, you can now start to get a better idea about whether or not stock market volatility is a valuable trading tool or a trap that should be avoided at all costs. Either way, there will be a price to pay for each. If you invest in an stock or asset with a stock market volatility, you will earn more as far as premiums and money if the risky stock does well, but you will also have to take any losses that the stock or asset may return. If the stock trades turn out to be profitable, however, there will be twice as much profit available, if not more.
I'm Aaron Redick, personal finance blogger to the stars (well, not really). I'm just a regular guy (well not really either). Seriously though, I have a lot of experience with investing and finance, and I'm here to teach you what I know. Please follow me in this journey to help ordinary people succeed where others have failed.