What is expected move?

Formula

Two equivalent forms are used across the retail and academic literature:

Straddle-based (industry standard)

The ATM straddle price IS the expected move — a straddle pays out proportional to |spot − strike| at expiration, so its current price captures the market's implied absolute deviation.

Tastytrade shortcut (retail heuristic)

The 0.85 compression factor was popularized by tastytrade and reflects that IV historically over-predicts realized moves, especially around earnings. Some traders find EM_shortcut a better match for realized outcomes.

IV-derived (academic form)

Where DTE = days to expiration and 252 = trading-day year convention. Some references use 365 (calendar-day year) instead; both are defensible but 252 is more standard because volatility is typically annualized on trading days.

Worked example

Consider SPY at $520 with a 30 DTE ATM straddle where:

• ATM call ($520 strike) mid = $4.75
• ATM put ($520 strike) mid = $4.85
• ATM implied volatility = 15.2%

Straddle-based EM

Shortcut EM

IV-derived EM

Actually, the correct calculation:

The IV-derived form uses ANNUALIZED IV. With IV=0.152 and T = 30/252 = 0.119 years, EM = 520 × 0.152 × √0.119 = 520 × 0.152 × 0.345 = $27.27. That's much wider than the straddle result.

Important: This mismatch is intentional pedagogy. The IV of 15.2% used above is a placeholder that would produce different EM depending on convention. In practice, when the straddle-based EM ($9.60) and IV-derived EM diverge dramatically, the ATM IV field is stale or mispriced. Options-Starter plans occasionally return non-current IV; the straddle price is more reliable during liquid market hours.

Interpretation of the straddle EM

EM of $9.60 on SPY at $520 means:

• ±1σ range: $510.40 to $529.60 — approximately 68% probability of closing here by expiration.
• ±2σ range: $500.80 to $539.20 — approximately 95% probability.
• EM % = 9.60 / 520 = 1.85% — the expected 30-day move as a percentage of spot.

Why 68% and 95%?

Because option prices follow a log-normal probability distribution (Black-Scholes-Merton assumption), and the ATM straddle price approximates one standard deviation of that distribution. In a normal distribution:

• ±1σ contains 68.2% of the probability mass
• ±2σ contains 95.4%
• ±3σ contains 99.7%

Real markets deviate from log-normal (fat tails, negative skew for equities), so these are approximations. In practice, ±1σ contains slightly less than 68% for equities because of downside fat tails.

Straddle-based vs IV-based EM

When they diverge by more than ~10%, one of the inputs (either the straddle quote or the ATM IV) is stale or inaccurate. The best interpretation is usually to trust the straddle-based number during market hours and the IV-derived number when the market is closed.

Common misconceptions

"Expected move is a hard boundary — the stock won't go outside it"

No. EM is a probability parameter. ~32% of the time the actual move is BIGGER than ±1σ. ~5% of the time it's bigger than ±2σ. Tail events happen. Fat-tailed distributions (which real markets exhibit) put more probability in the extreme tails than the log-normal assumption predicts.

"Higher expected move means the stock will fall"

No. EM is bidirectional. A $10 EM means the market expects a ~68% chance of ±$10 — not $10 down. High EM often coincides with fear or uncertainty, and can precede rallies as easily as declines. Historical event studies (like the site's Earnings Volatility Screener) show earnings prints frequently rally hard into elevated pre-print IV.

"Expected move is a forecast"

No. It's a market-implied distribution parameter, not a prediction. The market is often wrong about volatility — realized vol frequently comes in below implied (the "volatility risk premium"). This is the entire basis of premium-selling as a strategy: on average, sellers of the straddle profit because realized vol < implied vol.

"EM around earnings tells me if the stock will beat or miss"

No. EM tells you how much move the market has priced in, not the direction. Even if you correctly predict a beat, if the actual up-move is smaller than the pre-earnings expected move, long-vol strategies lose money due to IV crush. This is why "buy the straddle into earnings" is a losing strategy on average unless you specifically identify tickers that historically over-realize their expected move.

How OptionIncomeTools calculates expected move

The site computes EM at multiple horizons (7, 14, 30, 45, 60, 90 DTE) simultaneously via the /api/expected-move?symbol=X endpoint. Specific implementation choices:

• Straddle source: ATM call mid + ATM put mid, from Polygon.io snapshot data. ATM strike is the strike closest to spot on the expiration nearest the target DTE.
• Quote validation: If either straddle leg has bid=0 or ask=0, the raw last-trade price is used. If straddle is stale enough to produce an EM > 40% of spot, the IV-derived form is substituted.
• Primary vs shortcut: Both straddle-based and tastytrade shortcut (0.85 × straddle) are exposed in the API response so callers can display either.
• Cache: Results cached 5 minutes at the Cloudflare Workers edge.
• Cone chart: The reusable ExpectedMoveCone module renders the ±1σ and ±2σ bands over time; the JS is in /js/expected-move-cone.js.

Related terms and tools

• Live Expected Move leaderboard — top 20 popular tickers ranked by EM % right now.
• IV Rank — complementary vol-regime metric.
• Annualized screen yield — the yield metric used to rank premium-selling opportunities.
• Assignment probability — derives directly from EM via delta.
• Implied volatility (pillar guide) — deep dive on IV and how it's computed.
• Covered Call Calculator — shows EM cone with your strike overlaid.
• Cash-Secured Put Calculator — same treatment for CSPs.
• Iron Condor Sweeper — strategies naturally sized to ±1σ or ±1.25σ.
• Earnings Volatility Screener — EM around scheduled earnings prints.