Expected Move
Options AI puts the Expected Move at the heart of its trading platform
The Expected Move (or Implied Move) is the amount that a stock is expected to move up or down from its current price, based on current options prices. Options AI uses 85% of the value of the at-the-money (ATM) straddle for each expiration date to calculate the Expected Move(s).
Options AI presents a real-time visualization of the Expected Move of a stock or ETF across future options expiration dates.
Knowing the Expected Move can provide useful insight into what the options market is predicting for a stock or ETF. It can help spot opportunity and risk (particularly around catalyst events like Earnings) and it can also serve a useful gut-check of your view relative to the market's view.
For example, a directional trader may think that the Expected Move is underpriced and choose to buy options. An income trader may view the Expected Move as overstated and elect to sell options to collect premium.
On the Options AI platform, the real-time Expected Move is also used to help guide initial strike selection when generating option spread strategies using the Fast Trade feature.
Knowing where the market expects a stock to move by a future date (expiration date) might be used by a trader in a number of ways. For example:
A directional trader using Debit Spreads might use the Expected Move to guide short-strike selection. In other words, choose to cap gains and reduce premium outlay at the level beyond which the market believes a move is unlikely.
An income trader using Credit Spreads might also use the Expected Move to guide short-strike selection. In this case to optimize probability of profit by selling options to other traders at the level beyond which the market believe a move is unlikely. Of course, a Credit Spread trader with a stronger directional view and looking to sell an at-the-money option, might also utilize the expected move for long-strike selection. In this case to define risk at the Expected Move level.
These examples represent just a couple of ways that the Expected Move might be useful in guiding strike selection and should in no way be construed as definitive.
The Options AI 'Fast Trade' feature uses the Expected Move to guide strike selection when generating option spread strategies. Spreads widths will default to either (a) At-the-money to Expected move; or (b) Expected Move +/- one strike width.
Last modified 1yr ago