Expected Move

Option prices tell you how big a move the market expects by expiry. Here is how to read that range, and its limits.

In short
  • Expected move ≈ price × IV × √(days ÷ 365).
  • The at-the-money straddle price gives a quick estimate of the same range.
  • About two thirds of outcomes fall inside one expected move in theory; real markets have more big surprises.

The formula

Expected move (one standard deviation) = index level × implied volatility × √(calendar days to expiry ÷ 365). With Nifty at 22,700, IV at 14% and 7 days to expiry: 22,700 × 0.14 × √(7 ÷ 365) ≈ 440 points. The market is pricing a range of roughly 22,260 to 23,140 for that expiry.

The straddle shortcut

The price of the at-the-money call plus put (the straddle) is a quick market-based estimate. The straddle is about 0.8 of one standard deviation, so one standard deviation ≈ straddle ÷ 0.8. If the weekly ATM straddle costs 350 points, the one-standard-deviation move is about 440 points.

What the range means

Under a normal distribution, about 68% of outcomes fall inside one standard deviation and about 95% inside two. Real index moves have fatter tails: big gaps happen more often than the bell curve suggests, especially around events.

How option sellers use it

  • Choosing strikes outside the expected range.
  • Sizing positions so a two-standard-deviation move is survivable.
  • Being extra careful when an event sits inside the expiry.

Common mistakes

  • Treating the expected move as a hard limit.
  • Using trading days in the numerator and calendar days in the denominator.
  • Ignoring that IV is often higher before events and the range is wider then.

Common questions

How do I calculate Nifty's expected move for the week?

Multiply Nifty by its implied volatility and by the square root of (days to expiry ÷ 365). The ATM straddle price ÷ 0.8 gives a similar figure.

How often does Nifty stay within the expected move?

In theory about 68% of the time for one standard deviation. Real markets break the range more often than the bell curve suggests, mostly in sharp moves.

Is the expected move a prediction?

No. It is the range implied by today's option prices, which reflect the market's estimate of risk, not a forecast of direction.