Historical Volatility is important to derivatives traders needing to determines whether FAIR VALUE price quotes represent a premium or a discount.
When Implied Volatility moves higher than Historical Volatility traders will usually consider WRITING Options and when equal/lower BUYING Options.
From time to time the question is raised as to how to calculate Historical Volatility along with the usual confusion as there are variants according to the theme.
I have constructed a worksheet having drawn on various sources demonstrating a step my step method for the calculation of Historical Volatility of Stock Prices for a sample population (not total population) and examples using Excel and arithmetically.
