probability
Expected Move
Predicts the stock's likely price range by expiration based on implied volatility. The "1-sigma" move represents 68% confidence.
Formula
EM = S × IV × √(DTE / 365)
Variables
- EM
- Expected price range (±) by expiration
- S
- Current stock price
- IV
- Implied volatility (annualized, decimal)
- DTE
- Days to expiration
Worked Example
Inputs
- S
- $150
- IV
- 30% (0.30)
- DTE
- 45
Calculation Steps
- 1
√(45/365) = √0.1233 = 0.3511 - 2
EM = 150 × 0.30 × 0.3511
Result: EM ≈ ±$15.80 — stock expected between $134.20 and $165.80 (68% probability)
Intuition
The expected move is the core of strike selection. Selling options outside the expected move gives you a statistical edge (~68% of the time). For earnings, the straddle price itself IS the market's expected move — this is the most accurate measure.