Hey - wondering anyone using implied move or called expected move to estimate the option pricing? below is the definition I see from tasty trade but not sure how useful it is. Anyone tried?
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We use this calculation on the day before the binary event or very close to the expiration date. The expected move of a stock for a binary event can be found by calculating 85% of the value of the front month at the money (ATM) straddle. Add the price of the front month ATM call and the price of the front month ATM put, then multiply this value by 85%. Another easy way to calculate the expected move for a binary event is to take the ATM straddle, plus the 1st OTM strangle and then divide the sum by 2.
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We use this calculation on the day before the binary event or very close to the expiration date. The expected move of a stock for a binary event can be found by calculating 85% of the value of the front month at the money (ATM) straddle. Add the price of the front month ATM call and the price of the front month ATM put, then multiply this value by 85%. Another easy way to calculate the expected move for a binary event is to take the ATM straddle, plus the 1st OTM strangle and then divide the sum by 2.
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