Market Measures - August 27, 2021 - What Is a Standard Deviation?

published 3 weeks ago by tastytrade, Inc.

Standard deviations give us context around the typical fluctuations around daily returns or trade P/Ls that happen around 70% of the time. Comparing standard deviations of different option strategy P/Ls or underlying returns allows for a fair comparison of their risks. Higher standard deviations mean higher risk. Be aware that outlier risk is not accounted for in standard deviation, and the only way to protect yourself from these is to stay small.

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