How To Calculate Expected Move for Stocks | Trading Tutorials

Expected move is one standard deviation of movement from any given close as priced in from the options market, and there are three different ways to calculate it.

00:00 – Intro
00:27 – What Is The Expected Move?
01:49 – Think or Swim Expected Move
02:28 – Pricing The At The Money Straddle
04:20 – Pricing In The In The Money Strangle
06:37 – 16 Delta Options
10:33 – QQQ Example
14:18 – AAPL Example

Whats up traders, today we are talking all about expected move. What it is, and how to calculate it. You do not need think or swim to find this number, just access to the options chain of the underlying asset you want to calculate the move for.

So what is the expected move?

Expected move is where we would expect with 68% accuracy where price will be contained for a given time period based on the implied volatility in the options chain.

This would represent about a one standard deviation from the current price over the selected time frame and as we can see, one standard deviation on either side would give us 34 + 34 for a total of that 68%.

An important note before we start looking at how to calculate this number is that we want to make sure we take the read as the market is closed. For todays video we are looking at the weekly expected move, so we want to take this reading after the close on Friday but before the open on Monday.

So if you are using think or swim or tasty works, they have a proprietary algorithm that will display their estimated expected move on the right of the options expiration. We get a plus / minus some number. This will be the easiest way to gauge expected move... but don’t worry if you don’t have this. Ive got you covered with three very easy models to come up with a similar number.

First will be the pricing of the at the money straddle. All that means is looking at the last traded price, picking the nearest strike, and buying the call and the put both on the ask. Generally this number given current market context has been a bit below the ToS calculation.

To get a slightly more accurate price point, we can look at the pricing of the at the money straddle, add the first in the money strangle, and then divide by two to get an average, and as you can see, that number is exactly what ToS calculated.

The third method takes into consideration the skew in volatility from the call and put side of the chain, and that is to look at the 16 delta options on the call and put side of things. The reason that this works, if we look at the probability of touching and probability of ITM it aligns with how standard deviations work. Generally this method is more conservative and will price in a larger downside move compared to upside move.

Overall expected move is not something that should be used as a to the penny calculation. We want to use this information to get a general sense for what the market is feeling like, and help provide context to any moves that do start to develop. Do you really want to be chasing it long as we get outside of the upper bound of the expected move? Might it be reasonable to look for opportunities to go counter trend? This is ultimately how we use the calculation to help better provide context to the environment we are trading in.

#OptionsTrading #TradeIdeas #TechnicalAnalysis

DISCLAIMER: The information provided in this video is for informational purposes only. It should not be considered financial or legal advice. I am not a Registered Investment Advisor. Buying and selling financial instruments is highly speculative and carries risk.

[mikebenfield]

Matt - whatever you do, never chnage your teaching style!

[TWENTYELBRIDGE]

Forget trading this guy is an insane quality teacher holy crap

[MalibuJamie]

You did such a great job of explaining these techniques, Matt. Can’t believe I put off watching this video until now. 👍

[Slvrdo]

Hands down the best video made on the topic. This one video can change a traders life. Yet another reason to use ToS. Sharing this video everywhere. Well done!

[happylung]

to the point and very clear. This is the best video made on the topic

[allhallowseve]

Did I use this method to calculate this week's price range on $QQQ? Yes!
Did I get a bottom of 422.28? Yes!
Did I buy calls heading into NVDA earnings with some confidence when reversed off of 422? Yes!

Whew! So glad I found this! Thank you!

[EliteTraders]

Thank you Matt. I really appreciate you taking the time to make this video. Love your channel. I’m always anxiously awaiting your further videos.

[mikebenfield]

Matt - this worked the first time I ever tried it! Marked the SPX expected move on March 1st for March 8th and it hit the lower range mark of 5073.55 today (Tuesday) and then it dropped down 6 more points and hit the 16 delta of 5060. UNREAL!

[JimRobitailleMusic]

Thanks Matt. I have watched this video three times, and is great for gaining more information when looking into option trades even though TOS gives you the calculation for the first two methods. I like using the third one for adding that IV deviation range.

[TheKnightlight]

Hey there - new to your channel and relatively new to the realm of trading. I found myself in this world via the meme stock madness - your content is a league above the videos I've relied on as learning tutorials. Just wanted to say thank you and that I hope you continue doing this!

[Scharades]

Awesome video! Concise and full of info. Thank you!

[sharmaaj]

great video. simple, to the point, and thorough.

[ryanspeed]

Enjoyed the video and I really appreciate the content. Very helpful!!!!

[ScruffyWarlord]

Great video on expected move. Thank you.

[jroldan]

Love this, another way to keep an eye out on probabilities and building a thesis

[kennethwedmorelund]

What a great video ! Thanks for taking the time to do this !

[diannejudd]

I love all the good information here you're appreciated 😅

[jonathanlance]

Great video. The world of statistics revisited. Thanks.

[peteandrepete]

Great stuff as always Matt. Started incorporating this a couple of weeks ago and has really helped!

[MalikAli-oqwi]

❤❤ very nice no one tells this true teacher highly appreciated came to ur channel first time subscribed the channel thank u