Implied Movement on earnings

Discussion in 'Options' started by billsafari, Aug 22, 2011.

  1. Anyone know how to calculate that or know of a site that has the formula.

  2. rmorse

    rmorse ET Sponsor

    Look at the ATM Straddle with the current vol. "Guess" at what you believe the vol. would be after earnings. With that after earnings vol, how much does the stock have to move to break even on the straddle. That move divided by the current price is what your looking for.....That's the way I always do it.
  3. When you have time can you give an example.

    Thank you.
  4. I have the answer. 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.
  5. rmorse

    rmorse ET Sponsor

    It would be easier if you give me a quick call. 646-545-3860

  6. Also, If the underlying is not on the strike price like this example one would use the closet strike to the price of the underlying.