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Expected Move Formula:
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The Expected Move is a statistical measure that estimates how much a stock or asset is expected to move up or down over a certain period based on its current implied volatility. It represents the one standard deviation range (68% probability) of potential price movement.
The calculator uses the Expected Move formula:
Where:
Explanation: The formula incorporates the square root of time to account for how volatility scales with time, and uses annualized volatility (IV) adjusted for the specific time period.
Details: Expected Move helps options traders assess potential risk/reward, determine appropriate strike prices, and evaluate whether options are priced fairly relative to historical volatility.
Tips: Enter the current price of the underlying asset, the implied volatility (as a decimal, e.g., 0.30 for 30%), and the number of days until expiration. All values must be positive numbers.
Q1: What does one standard deviation mean?
A: One standard deviation means there's approximately a 68% probability that the price will stay within the expected move range (current price ± expected move).
Q2: How does expected move differ from historical volatility?
A: Expected move is forward-looking based on options prices (IV), while historical volatility looks at past price movements.
Q3: Why use 365 days in the formula?
A: Volatility is typically annualized, so we adjust it for the specific time period using the square root of time rule.
Q4: Can expected move predict exact price movements?
A: No, it provides a statistical range, not a guaranteed price target. Actual moves can exceed the expected range.
Q5: How do earnings announcements affect expected move?
A: Expected move often expands before earnings as IV increases, reflecting greater uncertainty about future price movements.