What is the expected move of a stock?
The expected move is an estimate of how far up or down the current stock price will change in the future.
Formula: (Stock Price) x (IV/100) x [square root (DTE/365)]
The formula above is how we can calculate the expected move. We take the underlying stock's current price and multiply that by the implied volatility of the at the money options of that specific expiration date. IV stands for implied volatility which is the forecasted volatility estimate in the future. This is used to forecast the potential movement of a stock price. IV is usually obtained via an options pricing model. ex. Black Scholes, binary pricing model...
Standard deviations
The formula above calculates the 1 standard deviation move in the underlying stock price based on these parameters. However we can adjust the formula to view the 2 or even 3 standard deviations above or below the stock price as well by simply multiplying the IV by 2 or 3. A one standard deviation range from the current stock price implies a 68% probability of the price to stay inside that range.
What is expected move used for and limitations
What is this used for exactly? Well this can be used to gauge the probability range of an underlying's price at a particular time in the future. This tool was built to help visualize this price range and give the user the ability to quickly view the expected move for any ticker that has options. However, all these variables are constantly changing and due to stock returns not being normally distributed due to black swan events. These estimates should be taken with a grain of salt and used as a simple means to view the current prediction of price movement in the future.
Here are some useful links
