How to calculate expected move based on Implied Vol?

Discussion in 'Options' started by optrader782, Oct 5, 2011.


  1. ...spin, can you help joe?....
     
  2. newwurldmn

    newwurldmn

    Roughly divide implied vol by 16
     
  3. gtor514

    gtor514

  4. This came straight from optionsmonster.


    What you would do is add together the ask price on the at the money strikes for both calls and puts, effectively pricing out the “straddle”. So if Exxon is at $70, you’d look at the 70 strike for both calls and puts (for the front month aka the month that will expire soonest). So lets say the $70 calls are going for 2 dollars and the $70 puts are going for 2.50, then there is a price of $4.50 for the straddle. You’d divide the straddle price by the price of the underlying to get the expected move.



    In the above example, $4.50/$70 is a 6.4% move

    If the price is not on the strike then you woud use the closet strike.
     
  5. spindr0

    spindr0

    I think that optionmonster's formula is simply calculating the amount of move (percent) needed to break even at expiration.

    I would surmise that the expected move is something along the lines of:

    IV x Sq Root of time until exp x Price
     
  6. 0.8*absoluteIV.
     
  7. Broch

    Broch

    {VIX/20 * Close/100} +/- Close

    1/5 is new. 25% of the range is standard deviation. So, both.
     
  8. sle

    sle

    IV * sqrt(time) would give you a single sd move, if thats what you're asking for. E.g. "S&P will move 2.1% tomorrow - that 2.1% = IV(ATM) * sqrt(1 day /252)".