Volatility Cones · Foundations
Free to readPercentiles, RICH & CHEAP
The cone is five lines and one dot. Learn what each line means and the whole chart reads in a glance.
Every horizon on the cone summarizes years of realized-volatility readings as five numbers. Stack those five across the seven horizons and you get the bands; drop today's implied vol on top and you get the verdict.
The five lines
At each horizon the tool sorts every historical realized-vol reading and marks five points: the minimum, the 25th percentile, the median, the 75th percentile, and the maximum. The median is the typical reading. The 25th–75th band is the "normal" middle half of the time. Min and max are the historical extremes — the calmest and the most violent that window has ever been.
A single horizon as a column: the shaded box is the 25th–75th band, the white line is the median, the outer ticks are min and max. Where today's VolDex® implied dot lands against those marks is the entire read.
RICH and CHEAP
Now the dot. When VolDex® implied vol pushes above the 75th percentile at a horizon, that horizon is tagged RICH — options are expensive relative to what this underlying has actually delivered, and a vol seller is being paid up. Below the 25th is CHEAP — realized vol has usually run hotter than this, so protection is on sale and a vol buyer has the edge. Between the two it's fairly priced, and there's no vol edge either way.
RICH = implied is high versus this asset's own realized history (favor selling premium). CHEAP = implied is low versus history (favor owning it). The percentile, not the raw number, is the signal.
Why the cone embodies mean reversion
Volatility doesn't trend forever — it reverts. The cone is a picture of that. A reading pinned to the maximum line rarely stays there; a reading on the floor rarely stays there either. That's why RICH and CHEAP are actionable: they mark the points where the next move in vol is more likely to be back toward the median than further into the extreme. The narrowing of the cone at longer horizons is the same fact in another form — over a year, vol almost always averages out near its median.
The 7-day versus the 30-day
Because each horizon has its own yardstick, the relationship between horizons carries information too. If the 7-day is RICH but the 30-day is fair, the market is paying up for near-term event risk and not much beyond it — a front-loaded cost structure. Reading the short window against the longer one exposes a term structure of cost, the realized-vol cousin of what the VolDex® Term Structure tool shows on the implied side.
The framework is free. To see live RICH/CHEAP tags on a name: ETFs with ETF Analytics, single stocks with ETF + Equities, full history via Everything.
See plans →Educational content from Nations Indexes. VolDex® is a registered mark of Nations Indexes. Diagrams are schematic. Nothing here is investment advice.