Expected Move Explained: Straddle and IV
The expected move is the size of move the options market is pricing for one expiration. It is read from option prices, so anyone with an options chain can calculate it. This short guide covers the two common methods, why they give different numbers, and why the result describes magnitude rather than direction. To try it with your own numbers, use the free expected move calculator.
What the expected move is
An option's price reflects, among other things, how far the underlying might travel before expiration. Options at the strike closest to the current price are the most direct read of that, because their price is almost entirely time value, which depends on how far the underlying might move in either direction. The expected move turns those prices into a single figure in dollars and percent, together with an upper and a lower reference level around the current price.
Every expected move belongs to one expiration and to the time the prices were read. A figure without those two dates cannot be compared with anything, which is why our dashboard prints the fixing session and the expiration next to each one.
Method 1: the at-the-money straddle
A straddle is a call and a put at the same strike and expiration. Add the mid prices of the at-the-money call and put and you have the straddle price, which is the expected move in dollars.
Expected move ($) = ATM call + ATM put · reference levels = price ± straddle
Dividing by the underlying price gives the percentage. Mid prices, halfway between bid and ask, are a better input than last trades, which can be hours old.
Method 2: implied volatility
Implied volatility is quoted as an annual figure. Scaling it to the time left gives one standard deviation of the move, in dollars:
Expected move ($) = price × IV × √(days ÷ 365)
The calculator counts calendar days over 365, as most option chains do. Our dashboard fixes its expected moves at each close from the at-the-money implied volatility and shows them as a straddle equivalent, √(2/π) × price × IV × √(days ÷ 365.25). Compare figures only within the same method and day count.
Why the two methods differ
The straddle prices the average size of the move, while the IV formula gives one standard deviation. If moves follow a bell curve, the average size is √(2/π) ≈ 0.798 of a standard deviation. With matching inputs, then, the straddle figure comes out near 80% of the IV figure. A much larger gap usually means the inputs do not match: an IV from another strike or expiration, wide bid-ask spreads, or a strike that is not close to the price. Some traders also take 85% of the straddle as a rule of thumb; that is a convention, not a third measurement.
Why it is not a forecast
The expected move describes how large a move option prices imply. It says nothing about which way price goes, and it is not a level price is drawn to. Price can and often does move beyond it, in either direction. The reference levels are arithmetic, the current price plus and minus the move, not destinations or turning points. TradeAI News explains the wider principle in why we do not predict direction.
A worked example
Illustrative numbers, not market data. Take an underlying at $200.00 with 7 days to expiration, an at-the-money call at $2.25, a put at $2.15 and an at-the-money implied volatility of 20%. The straddle method gives $2.25 + $2.15 = ±$4.40, or ±2.20%, with reference levels of $195.60 and $204.40. The IV method gives 200 × 0.20 × √(7 ÷ 365) = ±$5.54, or ±2.77%, with reference levels of $194.46 and $205.54. The straddle figure is 79% of the IV figure, close to the √(2/π) ratio. The public SPY gamma view shows SPY's current figure with its fixing date and expiration, next to estimated gamma by strike, and the options market structure guide covers implied volatility in more depth.
Frequently asked questions
We measure significance and magnitude, never direction.