Market Volatility

Market volatility

 In the current uncertain times, playing in a

volatile market may be the only way investors can extract profits from the stock market.

 How to cash in on intra-day volatility.

What is volatility? volatility refers to the variation in the value of the underlying and thus measures its instability. Though volatility is generally perceived to be negative, indicating high risk, it can be turned to an investor’s advantage if he/she buys at the day’s lows and sells at the day’s highs.

 While there are complicated mathematical

ways of calculating volatility, a simple method is by looking at the highest and lowest value of the stock.  For example, if a stock had a price range of Rs 900-1,100 on a day, then its volatility for the day will be 200/1000(the average value), expressed in % terms. The volatility in this case works out to 20%.

COMPANIES WITH MAXIMUM AND MINIMUM VOLATILITY as on 8-12-2008 Average Maximum Volatility Volatility HDIL

9.1%

34.9%

Unitech

8.5%

75.6%

Jayaprakash Associates

8.1%

29.7%

IFCI

8.0%

40.9%

Reliance Infra

8.0%

39.1%

Sun Pharma

4.8%

13.6%

Infosys Tech

4.8%

20.8%

Cadila Healthcare

4.6%

31.9%

ITC

4.6%

17.9%

Hero Honda

4.4%

17.0%

 The top 10 companies have average

volatility ranging from 7.6% - 9.1%. This means that if an investor had taken an exposure of Rs 1,00,000 each in the top 10 stocks at the day’s low and sold at the day’s high, s/he would have made a total gain of Rs 80,187 or 8.2% of the exposure taken on an average day.  For investors who wants to cash in on the intra-day volatility, the real art lies in being aware of the changing market dynamics.

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