What does it mean when the stock market is volatile?

Volatility is a statistic that measures the dispersion in returns for a specific security or market index. In most situations, the greater the volatility, the higher the risk of the security.

The standard deviation or variance between returns from the same security or market index are two common ways to measure volatility.

Volatility is a measure of risk that investors use to compare the expected return on investment to its standard deviation. In the securities market, large moves in either direction are often referred to as "volatile."

A market is considered "volatile" if it fluctuates more than one percent over a long period. When pricing options contracts, volatility is a key variable that must be considered.

Options traders think of volatility as the amount of uncertainty or "risk" they have to deal with when holding a position in an option contract. Volatility reflects the range within which the price of a security may fluctuate over time.