"At 2:32 pm on May 6, 2010, the S&P 500 careened 8% in just 36 minutes before rebounding with just as dramatic of a move." So starts Dominick Paoloni's paper on Timing the Market.

This got me thinking, "I wonder how much the historical volatility (HV) calculation that ORATS employs differed from what most people use, close-to-close HV on May 6, 2010."

A lot!

Below shows the ORATS HV 5-day amount 52.18% vs the close-to-close amount 25.18%, MORE THAN DOUBLE.

SPYmay6th2010
 

The trick is that ORATS HV utilizes the intraday moves in a stock in our calculation and close-to-close does not. This has an additional benefit of providing a one-day historical volatility calculation. Based on the methodology in the close-to-close calculation, this is impossible for that numeric.

Traders based so much of the characterization of the market based on historical volatility that you have to ask yourself, "Why are you still using close-to-close historical volatility?

More here on our calculation.

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