Two measures of uncertainty. | Canvas of Knowledge

Realised: measure what already happened

A common historical volatility calculation takes returns over a chosen window, measures their standard deviation and annualises the result. The price series, return convention, observation frequency and lookback period all matter. Daily closing returns over one month need not describe the same variation as a longer history or intraday observations. For silver, specify whether the underlying is spot metal, a particular futures contract or a fund. A label alone does not make datasets interchangeable.

Implied: work backwards from option prices

Implied volatility is inferred by finding the volatility input that makes an option-pricing model match an observed option price, given its other inputs. Those inputs include the underlying price, strike, expiry and relevant rates. It is therefore connected to today’s option market and its assumptions, rather than calculated solely from historical returns. Different strikes and expiries can imply different volatilities. CME’s silver options example illustrates this variation across strikes, commonly described as volatility skew or a smile.

Put both measures on a comparable basis

Before comparing numbers, align the underlying, currency, annualisation convention and relevant horizon. Historical volatility describes a completed window; an option’s implied volatility refers to the remaining life embedded in its price. They can differ without either being a calculation error. Annualising a short sample changes its reporting scale; it does not create a year of observations. Likewise, an implied measure does not guarantee that future realised volatility will equal the number quoted today.

Variation is not a compass

Higher volatility means greater dispersion of returns, not a reliable instruction that silver will rise or fall. A market can experience large movements in both directions and finish near its starting price. Implied volatility can also change as option prices and market conditions change, affecting an option even when the underlying barely moves. Read these measures as complementary descriptions of uncertainty, with their methods attached. Neither removes the need to understand the particular instrument, costs or possible losses.

FOLLOW THE EVIDENCE

Sources & further reading

Sources checked 14 November 2026. Reference organisations do not endorse this website. Price examples are hypothetical and educational.