Expected move before big events: how to read it
November is packed with scheduled events: the US midterm elections, a CPI release and one of the most watched earnings reports of the quarter. Before each of them, options get more expensive. The expected move tells you how big a move the market is pricing in, and it is the most useful number to check before you buy an option into an event.
- Nov 3
- US midterm elections
- Nov 10
- Consumer price index (CPI) for October, 8:30 a.m. ET
- Nov 17
- Nvidia quarterly results after the US close
- Nov 20
- Monthly options expiration (third Friday)
What the expected move is
The expected move is the range the options market prices in until a given expiry. It comes straight from implied volatility: price × IV × √(days ÷ 365). It is a one standard deviation range: in the model the stock ends inside it in about two of three cases. It says nothing about direction.
A quick shortcut many traders use: the price of the at the money straddle (one call plus one put at the same strike). In the model the straddle is worth about 0.8 times the one standard deviation move, so the straddle slightly understates the range.
Why options get expensive before an event
Before a known event, traders want protection or a leveraged bet, and option sellers want to be paid for the risk of a jump. Implied volatility in the expiries that include the event rises. The calendar itself barely changes, but the price of one big day is packed into a few days of option life.
Our fictional chipmaker Kestrel Semiconductor trades at $150. On a normal week its options trade at 35 % IV. With results due in seven days, the weekly options trade at 70 % IV.
| Seven days, stock at $150 | IV | Expected move |
|---|---|---|
| Normal week | 35 % | ± $7.27 (4.8 %) |
| Week with results | 70 % | ± $14.54 (9.7 %) |
| At the money straddle | 70 % | $11.59 |
The market now prices a move twice as large. Whether that is cheap or expensive depends on how the stock usually reacts to results, and on the IV rank: how high IV is compared with its own past year.
What happens after the event: IV crush
Once the news is out, the uncertainty is gone and implied volatility usually drops fast. That is the IV crush. A buyer is hit twice: the option loses its event premium, and one day of time value is gone.
Say you buy the Kestrel $155 call with seven days left for $3.77. Breakeven at expiry is $158.77, a move of +5.8 %. The day after the results, IV is back at 40 %. The chart shows what the call is worth for different stock prices, compared with a world where IV had stayed at 70 %.
What this means in practice
- The direction is only half of the trade. Up $5, a solid move, and the call still loses 15 %. Without the IV drop it would have gained 48 %.
- Compare the move you need with the move that is priced in. The call needs +5.8 % to break even at expiry, and the market prices about ±9.7 %. Before the event that looks reachable, but the IV drop moves the real hurdle up the day after.
- Time matters. An option with more days after the event loses less of its value in the crush, because the event is a smaller part of its life. This is why the screener's example setups use longer expiries and flag upcoming earnings dates.
- For index events like CPI or an election the same logic applies to options on index ETFs, usually with smaller numbers.
Before you buy an option into an event, put three numbers next to each other: the expected move to your expiry, the move you need to reach breakeven, and the IV rank. If the move you need is close to or above the expected move and IV rank is high, you are paying a lot for the idea. The free calculator shows the first two in seconds; the link below opens it with the Kestrel example.
Frequently asked questions
Is the expected move a forecast?
No. It is what option prices imply under a simple model. Real moves after results are often larger or smaller, and the model ignores jumps and skew.
Why do options lose value after good news?
Because part of their price was the uncertainty before the news. When implied volatility drops, that part disappears, even if the stock moved in the right direction.
Where do I find the implied volatility for my expiry?
In your broker's option chain, for example in Trader Workstation at Interactive Brokers. Use the IV of the expiry you plan to trade, not a 30 day average.
Terms in this article
Sources
- U.S. Bureau of Labor Statistics: CPI release schedule
- NVIDIA: conference call for third quarter results