We can use IV and the price of the stock in a formula to give us an expected range for any n number of days. If we set n = 1, this gives us the expected range of one day’s move. So how much does a stock have to move beyond its expected range in one day for a scalping opportunity to be profitable in the long run?
We looked at past data to see where the stock closed after breaching 0.5 SD, 1 SD and 1.5 SD of its daily expected move.
We.found that going long when a stock breaches its 1 SD theoretical expected move, we can expect the stock to close within the 1 SD range 55% of the time, presenting a profitable scalp opportunity in the long run. When the stock breached its 0.5 SD or 1.5 SD, there was no significant scalp opportunity to be had.
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