Turn a stock’s implied volatility into the price range the options market expects by a given date. Use it before earnings, before a big event or to pick strikes.
How it works
Implied volatility is the yearly move the options market is pricing in. Scaling it down to the days you care about gives a one standard deviation range.
Roughly two times out of three the stock should finish inside that range, and about 95% of the time inside twice that range. Real moves are not perfectly normal, so big surprises happen more often than the math suggests, especially around earnings.
Worked example
A $250 stock with implied volatility of 32% and 7 days to expiration: 250 × 0.32 × √(7 ÷ 365) = about $11.08. The one standard deviation range is roughly $238.92 to $261.08, and the two standard deviation range about $227.84 to $272.16.
Expected Move questions
Where do I find a stock’s implied volatility?
Your broker shows it on the option chain, usually for each expiration. For stocks reporting this week, the Earnings Calendar shows the implied move already worked out.
Why 365 days and not trading days?
Implied volatility is quoted on a calendar year, so calendar days keep the math consistent. Some traders use 252 trading days instead; the result is close either way.
Is the expected move the same as the straddle price?
They are close. The at the money straddle is a quick market estimate of the same move and usually comes in a little under the one standard deviation figure.
Why did the stock move more than expected?
The range covers about two thirds of outcomes, so one move in three lands outside it by design. Earnings, news and gaps make large moves more common than a normal curve predicts.
For informational and educational purposes only. Not investment advice, and not a recommendation to buy or sell any security. Results are estimates from the numbers you enter.