As discussed in the "Expected Move" post, the expected movement of a stock can be calculated with the following formula, where S subscript 0 is the stock's current price, IV is implied volatility, and the final term is the square root of days to expiration divided by 365: Though an intimidating formula at first glance, it provides traders with the approximate range in which a stock's price may travel in a given amount of time or days to expiration (DTE). Note: The image above should say plus or minus preceding the square root sign. To visualize, let's look at an example. Assume a SPY stock's price on low for the year on Feb 11th 2016 as $182.86, with an implied volatility of 28.14%. To calculate the expected move in 30 days, we substitute "DTE" with actual number of dates and solve for EM. The plus or minus range for each expiration will approximately equate to the EM calculations using the mid-price fills of EM spreads and the MMM value.
8 Comments
7/4/2017 10:33:40 am
Hi Nisha,
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samuel
5/18/2018 11:26:26 pm
pl send
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raju
2/4/2019 08:19:45 am
how did you calculate 2sd and 3sd
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Anon
3/9/2022 08:05:10 pm
+2sd = stock price + (expected move * 2)
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1/3/2020 02:32:05 am
I admit the fact that I am hot really familiar with the world of stocks so I find the article really hard to understand. But still I want to make a research and read more article about this, that's why I came here. I am not familiar with Probability Analysis Chart that's why I want to thank you for teaching me the ways on how to deal with it. It may be hard at first, but if you are devoted to understand it even more, I am sure that you will get it eventually!
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don
12/10/2021 12:34:40 pm
i'm lost. i think you jumped ahead and forgot to include some formulas.
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Dinakar Nathan
4/21/2022 07:56:33 am
Interesting concept.....how can we estimate on Friday, the expected move for an underlying one week from now and 4 weeks from now ?
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NishaNinteen year-old trader, future connoisseur of options. Follow me on Twitter!
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