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Options Jive

Calculating Expected Moves | Calendar vs Trading Days

Apr 6, 2016

Does it make a difference if we use trading days to expiration (DTE) instead of calendar days to expiration when calculating the expected move of the underlying?

The two different formulas were provided. In the square root function of the formula, the number of calendar days divided by 365 is used in the formula with calendar days. When using trading days, the formula uses the number of trading days divided by 252 in the square root function.

A table comparing the expected move using trading days versus calendar days in an underlying with an implied volatility of 20% was displayed. The table included the number of days (10-251), expected move on both and the difference between the two. The table showed the difference between trading and calendar days was minimal.

A table comparing calendar days versus trading days using only options with a 45 DTE and changing volatility levels was displayed. The table calculated expected moves on both days with an IV of 10%, 20%, 30%, 40%, and 50%. The table showed a small difference between the days as the IV grew.

For more on calculating the expected move you can watch these segments:

Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the important takeaways and information on calculating the expected move.

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