Volatility cone
A volatility cone plots the historical range of realized volatility for several measurement horizons, for example the minimum, median and maximum of 10-, 20-, 60- and 120-day realized volatility over past years. Overlaying current implied volatilities on it shows whether options price each horizon high or low relative to what the underlying has actually done.
Senzoukria · Glossary · Updated September 2026
At a glance
- X-axis
- Measurement horizon (days)
- Y-axis
- Realized volatility: minimum, percentiles, maximum over history
- Use
- Compare the implied volatility term structure with realized ranges
How it is built
Choose a set of horizons, compute rolling realized volatility for each over a long history, and record for each horizon its minimum, a few percentiles and its maximum. Short horizons produce a wide range, because a few days can be very calm or very violent; long horizons produce a narrower range, because extremes average out. The resulting bands narrow from left to right, which gives the chart its cone shape.
Worked reading
Hypothetical figures for an index: over the past years, 20-day realized volatility ranged from 7% to 60% with a median of 14%, and 120-day realized volatility from 9% to 35% with a median of 16%. If 20-day implied volatility is 24% and 120-day implied volatility 18%, the short end is priced well above its historical median while the long end is close to its own. That describes where options are rich relative to history, not whether they are mispriced: the next period may be as volatile as the market expects.
| Horizon | Realized min | Realized median | Realized max | Current implied |
|---|---|---|---|---|
| 20 days | 7% | 14% | 60% | 24% |
| 120 days | 9% | 16% | 35% | 18% |
Assumptions to keep in view
- Realized and implied volatility must use the same annualisation convention, trading days or calendar days, or the comparison is biased.
- The history chosen sets the range: a sample without a crisis understates the upper band.
- Overlapping rolling windows are strongly autocorrelated, so the percentiles are less precise than the number of observations suggests.
- Implied volatility includes a risk premium; sitting above the median does not make it wrong.
In Senzoukria
Senzoukria does not draw a volatility cone. Its chart indicator library includes a Realized Vol indicator, the sample standard deviation of the last N log returns annualised with a configurable periods-per-year value whose default assumes one-minute bars, and the GEX module's Volatility page shows the implied volatility term structure of the loaded chain. Putting the two side by side is possible, provided the annualisation of the realized figure is set to match the bars used.
Related
In the same section
- IV rank vs IV percentile
- Volatility crush
- VIX
- Volatility drag
- Visible range volume profile
- Vertical spread
- Volatility skew
- Velocity logic
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Frequently asked questions
- Why is the cone wider for short horizons?
- Because realized volatility measured over a few days depends on a handful of returns, which can be unusually calm or unusually violent. Over longer horizons, calm and violent periods average out, so the measured volatility varies less from one window to the next.
- Can a volatility cone tell me if options are cheap?
- It tells you where implied volatility sits relative to historical realized ranges. Whether that makes options cheap depends on what volatility turns out to be, which the cone cannot know, and on the risk premium sellers normally demand.