Lesson Overview

What's The Expected Move?

Calculating the expected move is a great tool to use when determining how far OTM to sell options for an earnings set-up. And this quick tutorial will show you how to use the the weekly ATM straddle options for pricing to help figure out how far the stock is likely to move following the company's earnings announcement.

Again this does not guarantee that we are able to correctly predict the possible range but we can get a very high confidence range based on how we calculate the expected move. This should enable us to consistently make 70% probability of success trades.

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  • Great comment and thanks for the link!

  • Awesome thanks for sharing – great insight!

  • Izzy

    Hey Kirk, what option price do platforms use to calculate overall Stocks Implied Vol? Is it front month( the closest expiration) at the money option’s price or what?

    • Depends on the platform. Most platforms use a combination of ATM and slightly OTM option prices to determine volatility. More emphasis is placed on ATM options though.

  • Eli Cepeda

    Hey Kirk, I just want to let you know how much I am enjoying all your videos. Thanks

  • It’s just a traditional easy way to roughly calculate the expected move based on a normal distribution equity curve. All we do is add the price of the front month ATM call and the price of the front month ATM put, then multiply this value by 84%. Yes sometimes earnings trades don’t make enough to cover this distance in which case it’s a pass on the trade.

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