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Expected moves Vs One standard deviation ?


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Expected moves Vs One standard deviation ?

  #11 (permalink)
 
Neo1's Avatar
 Neo1 
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Volt View Post
I've been discussing with other TOS users in the TOS forum and even Think or Swim can't seem to answer this. That number in parenthesis to the right of the implied volatility on an option chain is suppose to be a one standard deviation move according to Don Kaufman and other people in the TOS forum. The problem comes when you go to the analyze tab or look at the deltas and add or subtract that EXPECTED move number it doesn't hit a minus 16 or plus 16 delta all the time but the analyze tab doesn't come close to the numbers. This isn't a discussion about skew right now.

With 2 days to go the SPY Friday expiry closed at 244.56 today so adding and subtracting that 1.744 expected move gets you to
246.3 on the upside and 242.8 on the downside yet the Analyze tab show 241.50 and 247.12.......these difference get bigger when you go further out in time....what gives ? What should we use for a one standard deviation move ? I've watched tasty trade videos and theotrade but nothing seems to come together. Here is a screen shot of the analyze . Try this same thing going out to September 20th for example and the numbers are way off




any help out here ? Thanks

Volt

I think everyone is overcomplicating this.

The expected move in TOS will be a basic calculation. I have seen this covered multiple times before on the likes of Tasty Trade from the God father himself( Tom Sosnoff).

The reason for the discrepancy will be due to a different calculation method or a different expiration date.

The analyze tab is likely using:
Stock price x IV/ 100 x √ days to expiration/ 365) to calculate a 1STD move.

The expected move (1.733), could be calculated using a different estimation method: eg
(ATM call price + ATM Put price)x 1.25( usually 0.85-1.25 is used here)
^This is arbitrary. I think TOS originally used 0.85 for the expected move, and 1.25 for the 1STD move.

*The other explanation could be that the expected move 1.733 is based on the expiration date when the analysis tab could be from now to the end of the week etc

I don't use TOS, but this should be easy to get to the bottom of.

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