Unit 2 · Level 3 · Event trading
The expected move
Before every earnings report, the options market publishes its forecast in plain sight: the at-the-money straddle. Add the ATM call and put prices in the expiry just after the event, and that sum is roughly the move the market expects, up OR down. No subscription needed. Pros read this number before forming any opinion of their own.
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What you get asked
The quickest honest read of an event's expected move comes from…
The straddle is a real price paid by real money: a consensus forecast with skin in the game, unlike any pundit's guess.
A stock trades at €200 into earnings. The at-the-money straddle costs €14. Using straddle price ≈ expected move, what move in % is priced in?
€14 ÷ €200 = 7%. The market is paying for a ±7% swing. The stock must beat that for straddle buyers to profit.
Put the pro's expected-move ritual in order
Thirty seconds of arithmetic gives you the market's own forecast. Every event trade starts from this number.
If the straddle implies ±7% and the stock moves only 3%, straddle BUYERS ___ even though price moved.
Movement isn't enough: the move must exceed what was paid for it. The expected move is the buyer's hurdle, not a bonus.
What is the expected move NOT?
The straddle says 'about this far', never 'this way'. Direction is the one thing the options market refuses to tell you for free. 🐜
The rest of this unit
Expected moves, straddles and binary gaps: trading the calendar like a pro.