A volatility cone is a visual analytical tool that displays the range of historical realised volatility for an underlying asset across multiple time horizons — typically showing the minimum, maximum, 25th percentile, median, and 75th percentile of historical volatility observed over different lookback periods such as 10 days, 30 days, 60 days, and 90 days. The cone shape arises because shorter-term volatility estimates fluctuate more widely (larger range) while longer-term estimates converge toward the long-run average (narrower range). Traders overlay the current implied volatility of options at corresponding tenors onto the volatility cone to assess whether current implied volatility is high or low relative to historical norms — a key input for volatility trading decisions. For Indian options traders using Nifty 50 and Bank Nifty instruments, a volatility cone helps identify when options are cheap (current implied volatility near the bottom of the historical range) — a signal to buy volatility — or expensive (near the top) — a signal to sell volatility through strategies like short straddles or iron condors.
For android only
