Market Measures

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Comparing Expected Moves & Actual Moves

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

We use Implied Volatility (IV) for a variety of things when looking at potential options strategies. Our primary use of IV is to measure whether or not option prices on a certain market are currently expensive of cheap relative to their historical prices. We do this thorough our IV Rank metric.

Today, the guys use IV a different way: to calculate the expected move of a stock in the future. After noting the formula and importance of this expected move number, Tom and Tony take a look at a study that compared expected moves to actual moves from the past in fifteen different markets.

The Study
  • 2010 to present
  • Compared 45-day (1 standard deviation) implied moves in equity indices, commodities, and single stocks
The Results

We found that all of the markets that we looked at actually witnessed overstated expected moves as a function of their options prices. Equity indices saw the largest overstatement, and hence our use of the S&P 500 as a go-to stock to sell premium in. Check out the segment above for more details.

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