Expected move

Definition

The expected move is the size of underlying price change the options market is pricing over a given horizon, expressed in dollars or percent. It is read from option prices — most directly from the at-the-money straddle — and is the market’s own benchmark against which a directional or volatility thesis states its disagreement.

How it works / structure

• From IV: expected move ≈ S · σ_iv · √(T/365) for a one- standard-deviation horizon move (annualized IV scaled to the window). The platform’s expected_move_pct concept carries this.
• From the straddle: the ATM straddle price approximates the market’s expected absolute move to expiration; Brenner and Subrahmanyam (1988) give the closed-form link between ATM option price and implied standard deviation (straddle ≈ 0.8·S·σ√T under BSM assumptions).
• Event isolation: for a report inside expiry E1 but not E0, the event’s implied move can be extracted from the IV difference between adjacent expiries (implied_earnings_move_pct); realized minus implied is excess_earnings_move_pct (event-earnings).
• Units discipline: a one-sigma range is not a maximum — roughly one-third of outcomes land outside ±1σ under normal assumptions, before fat tails.
• Simulation parameters: horizon, IV tenor matched to horizon, straddle-vs-formula method flag; event runs store implied vs realized move pairs.

When it applies

Every event thesis (the priced move is the bar a thesis must disagree with — lens-event-catalyst), strike selection for range-defined structures (strategy-iron-condor wings placed relative to the expected move), volatility theses (strategy-straddle expresses exactly that disagreement — realized vs implied), and position sizing against plausible move sizes.

Risk profile & failure modes

• Sigma-range misreading: treating ±1 expected move as a boundary rather than a ~68% band (before fat tails) systematically under-sizes tail exposure.
• Distribution asymmetry: one number hides skew — the market may price a small up-drift with a fat down-tail (opt-volatility-skew carries the shape).
• Premium bias: because IV on average embeds a risk premium (opt-implied-volatility evidence), implied moves on average slightly overstate realized moves — “the straddle usually overprices the move” has empirical support on average but fails exactly on the surprises that matter.
• Stale reads: expected moves drift with IV all session; an entry decision benchmarked to a morning read can be against a different priced move by the close.

Evidence & limits

The IV-to-move arithmetic is model mathematics (Black-Scholes 1973; Brenner-Subrahmanyam 1988 for the ATM approximation). The average gap between implied and realized event moves follows from the volatility-risk-premium evidence cited in opt-implied-volatility; per-name, per-event gaps vary widely and are the platform’s own recorded data (excess_earnings_move_pct), not an assumed constant.

Falsifiable-thesis examples

Illustrations only, not signals:

• “X’s realized earnings-day move will exceed the implied earnings move priced the prior close” — falsified if |realized| ≤ implied.
• “Over Y’s next four earnings reports, the implied move will exceed the realized move at least three times” — falsified by the recorded pairs.

Cross-references

• Inputs: opt-implied-volatility, opt-term-structure
• Event mechanics: event-earnings, event-fomc, lens-event-catalyst
• Strategy consumers: strategy-straddle, strategy-strangle, strategy-iron-condor, strategy-calendar-spread