🧩 What “Expected Move” Means
The expected move tells you how much the stock is expected to move (up or down) over a given period — based purely on option prices (i.e., implied volatility), not on direction.
It’s derived from the standard deviation implied by option prices — essentially, a 1σ (one standard deviation) move in probability terms.
That means:
🔢 The Formula
For 1 month expected move, you can use:
Where:
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Stock Price = Current underlying price
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IV = Implied Volatility (in decimal form, e.g. 28% → 0.28)
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T = Number of days until expiration (typically 30 for one month)
🧮 Example Calculation
Let’s assume:
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Stock Price (S) = ₹1,000
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IV = 28% = 0.28
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T = 30 days
Now plug in:
First compute the time component:
Then multiply:
✅ Expected Move ≈ ₹80 (±8%) in one month
That means:
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There’s about a 68% chance the stock trades between ₹920 and ₹1,080 in one month.
🧠 Intuitive Understanding
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IV represents annualized standard deviation (the market’s estimate of yearly volatility).
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To find a shorter-period volatility, you scale it down by the square root of time.
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The √(T/365) term adjusts IV to the time frame of interest.
📈 Quick Reference
| Period | Formula Multiplier | Meaning (for IV=28%) |
|---|---|---|
| 1 Day | √(1/365) = 0.052 | ~1.46% daily move |
| 1 Week | √(7/365) = 0.138 | ~3.9% weekly move |
| 1 Month | √(30/365) = 0.287 | ~8% monthly move |
| 3 Months | √(90/365) = 0.496 | ~14% 3-month move |
| 1 Year | √(365/365) = 1.0 | 28% annual move |
⚠️ Notes
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This is a statistical (not directional) forecast — it doesn’t say which way it’ll move.
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For multi-month periods, use the appropriate T.
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IVs differ across maturities — ideally, use the IV of the option with 30 days to expiry.
Two Key Volatilities
| Type | Symbol | Meaning |
|---|---|---|
| Implied Volatility (IV) | σᵢ | Forward-looking — derived from option prices. Reflects what traders expect future volatility will be. |
| Realized (Historical) Volatility (HV) | σʳ | Backward-looking — measures how much the stock actually moved in the past. |
So:
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IV = Market’s forecast
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HV = Actual weather that followed
If IV ≫ HV → options are expensive (market expecting big move)
If IV ≪ HV → options are cheap (market complacent)
⚙️ Step 2. Formula for Realized Volatility
You can compute annualized realized volatility using daily returns:
Where:
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daily returns = (Priceₜ / Priceₜ₋₁) - 1
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252 = trading days in a year
This gives volatility in annualized %, directly comparable to IV.
🧮 Step 3. Compare Example
Let’s continue with your earlier IV = 28% example for a ₹1,000 stock.
Now suppose over the last 30 trading days, the stock’s daily percentage changes (returns) had a standard deviation of 1.1% per day.
Then:
So:
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IV = 28%
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HV = 17.5%
📊 Step 4. Interpretation
| Metric | Value | Interpretation |
|---|---|---|
| IV (from options) | 28% | Market expects more volatility ahead |
| Realized Volatility | 17.5% | Stock has been calmer recently |
| IV – HV = 10.5% | Options are expensive; traders expect more turbulence |
That means the expected 1-month move (₹80) may be larger than what typically happens if realized vol stays at 17.5%.
🧠 Step 5. Practical Use
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For Options Traders:
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If IV ≫ HV → Consider selling options (collecting high premium)
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If IV ≪ HV → Consider buying options (expecting bigger move than priced in)
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For Stock Investors:
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Compare implied move with your own expectations.
If the market is pricing in too much fear, that might create buy opportunities (e.g., during panic).
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For Hedging or Event Analysis:
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Around results, elections, RBI meetings — IV spikes, often higher than realized post-event.
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🔢 Example Recap Table
| Metric | Formula | Example Result (S=₹1000, IV=28%, HV=17.5%) |
|---|---|---|
| 1M Expected Move | S × IV × √(30/365) | ₹80 |
| 1M Historical Move | S × HV × √(30/365) | ₹50 |
| Difference | – | ₹30 premium priced in |
So the market is expecting ₹80 move while the past behavior supports ₹50.
If you think realized volatility will remain near 17–18%, the options are overpriced.
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