How this number is made
Traders read a rough expected move by dividing the at-the-money straddle by the share price. It is the option market’s price, stated as a percent, not a probability and not a one-standard-deviation formula. Some desks multiply by about 0.8. This page shows the raw percent and that 0.8 shortcut, and it does not pick a winner.
- The straddle is the call premium plus the put premium at the same strike.
- Use the expiration you mean. A one-week straddle is not a monthly move.
Formula
Raw move = straddle ÷ share price. The 0.8 shortcut = 0.8 × that percent.
Worked example
With the figures already in the form, straddle divided by the price is 5.0%.
Questions
Is this implied volatility?
No. Implied volatility is the volatility that matches an option price inside a model. This is only the straddle divided by the stock.
Does the stock stay inside the band?
Not as a promise. The band is a price the options are charging, not a fence.