# Volatility Rule of 16

## Why Do You Multiply or Divide Volatility by 16?

You might have heard or seen traders multiplying volatility by 16 when calculating annualized volatility. Or you have heard traders dividing annual volatility by 16 when transforming it into daily volatility. Why 16?

The reason is very simple:

16 is approximately the square root of the number of trading days per year.

## Number of Trading Days per Year

The number of trading days per year is slightly different in different countries and even for different securities, because different exchanges observe different holidays. Nevertheless, mostly it is somewhere around 250 trading days per year. For US stocks and options, the number of trading days per year has been about 252 in the recent years.

## Why 16 and Why Not 15.87?

The square root of 252 is 15.87.

Or 15.8745079 to be more precise.

The obvious reason why a trader multiplies by 16 rather than by 15.8745079 is that with the 16 it is relatively quick and easy to calculate in your head. Time is often scarce when trading.

Furthermore, the rounding does not result in a particularly big error. For example, if you have daily volatility of 1.5% and annualize it, you get 24% if you multiply it by 16 (and it is very easy to do in your head) and you get 23.81% if you open Excel and multiply it by the exact square root of 252. Not much difference and the exact one takes 10x longer to calculate.

## Why the Square Root?

Volatility is proportional to the square root of time and not to time directly. You can find full explanation of this here:

Why Is Volatility Proportional to the Square Root of Time?

## Related pages

calculate population mean from sample meanstraddle strategy optionsswiss frank etfinterpret skewness and kurtosishow to calculate standard deviation in excel 2007swiss franc etfgeometric vs arithmetic averagewhat is 13f filingcboe settlement pricesdefine contangoformula for kurtosishow to interpret kurtosiscurrency etfsdownload yahoo finance data into excel13f fillingsvariance and standard deviation formulasnotepad backgroundbloomberg s&p 500 futureseuro currency etfimplied volatility vbathe formula for finding the sample mean iscalculating standard deviation on a calculatoraverage inventory cost methodarithmetic mean formulashow to calculate ema in excelmeasures of skewness in statisticsblack scholes dividend paying stocksoros hedge fund holdingsaugen the books&p 500 csvblack schole modelpercentiles calculator statisticsprotective put payoffnormdist calculatordownloading stock prices from yahoo financemsft share price historyskewness statisticsj welles wilder pdfrsi overboughtmicrosoft stock calculatorusing excel to calculate standard deviationoption implied volatility calculatorblack scholes explainedrealised volatilitywhat does negative kurtosis meanexcel gamma functionsample variance definitionaapl implied volatilityblack-scholes option valuation modelprice weighted indexesvix trading hourscalculating sharpe ratio in excelweighted average ending inventoryvix methodologydelta hedge examplemomentum indicators in technical analysiswww yahoo finance com symbolshow to annualize daily returnsmsft yhoofree float market capitalisationimplied volatility calculation formuladistribution kurtosisvix future settlementyahoo finance stock optionscall option payoffblack scholes gammabloomberg volatility calculationcboe vix quotestatistics kurtosisproshares shortwhat is the wacc formulaformula to calculate waccblack scholes with dividendvix historicalwhat does negative kurtosis meanlong straddle optionsbull call spread option strategywhat does a negative kurtosis meanoptions vix