The expected move: what the straddle is pricing
How to read the at-the-money straddle and implied volatility as the market's expected range by expiry.
Implied volatility is quoted per year. Scaled to the time left, it gives a one-standard-deviation move: price × IV × √(days ÷ 365). The at-the-money straddle costs about 0.8 of that move, so the straddle's price is a quick read of the move the market expects by expiry.
One standard deviation by expiry, on an index at 25,000
| Implied volatility | 1 day | 7 days | 30 days |
|---|---|---|---|
| 10% | ±131 (0.52%) [104] | ±346 (1.38%) [276] | ±717 (2.87%) [572] |
| 13% | ±170 (0.68%) [136] | ±450 (1.80%) [359] | ±932 (3.73%) [743] |
| 18% | ±236 (0.94%) [188] | ±623 (2.49%) [497] | ±1,290 (5.16%) [1,029] |
| 25% | ±327 (1.31%) [261] | ±866 (3.46%) [691] | ±1,792 (7.17%) [1,429] |
Under the normal-distribution approximation the price ends within ±1 standard deviation about two-thirds of the time. Real markets have fatter tails: large moves happen more often than the bell curve suggests, which is exactly when short-premium positions lose most.
Arthfy's Home tab shows the expected move for each index from its live straddle and IV; the option chain shows the same for any F&O underlying.
