Earnings Expected Move Calculation

Summary

The expected move is the options market's best estimate of how far a stock will move after earnings. It is derived from the ATM straddle price and represents the range within which the stock will land roughly 68% of the time (one standard deviation). Knowing the expected move is the foundation for every earnings options strategy.

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The Quick Calculation

The simplest way to calculate the expected move:

Expected Move = ATM Straddle Price × 0.85

The 0.85 multiplier adjusts for the fact that the straddle includes time value beyond just the earnings event.

Example: AAPL is at $195. The weekly straddle (expiring the Friday after earnings) costs $10.00. Expected move = $10.00 × 0.85 = ±$8.50, or about ±4.4%.

This means the market expects AAPL to be between $186.50 and $203.50 after earnings, roughly 68% of the time.

The Precise Calculation

For a more accurate expected move, use the strangle method:

  • Find the ATM weekly straddle price (call + put at the strike nearest the stock price)
  • Alternatively, take the first OTM call + first OTM put prices
  • Multiply by 0.85

    • Some traders skip the 0.85 multiplier and use the raw straddle price. This gives a slightly wider expected range but is simpler.

    Why 0.85?

    The raw straddle price includes time value that will decay even without earnings. The 0.85 multiplier removes the non-earnings portion of the time value, isolating the earnings premium.

    For stocks reporting on Tuesday with a Friday expiration, the straddle includes 3 extra days of non-earnings theta. The 0.85 adjustment is conservative. For stocks reporting on Thursday with a Friday expiration, the raw straddle is closer to the true earnings-only expected move.

    Adjustment by day of the week:

    | Earnings Day | Multiplier | Reasoning | Monday0.804 extra days of theta Tuesday0.823 extra days Wednesday0.852 extra days Thursday0.901 extra day | Friday (pre-market) | 0.95 | Nearly all earnings-related |

    What the Expected Move Tells You

    For premium sellers: Set your short strikes at or beyond the expected move. If the expected move is ±$8.50, your short call should be at $203.50+ and your short put at $186.50-. This gives you roughly a 68% probability of both legs expiring worthless.

    For premium buyers: The expected move is your breakeven. If you buy the straddle for $10.00, you need the stock to move more than $10 in either direction to profit. Ask yourself: does this stock historically move more than the expected move?

    For directional traders: The expected move helps you set realistic price targets. If you are bullish on AAPL and the expected move is $8.50, expecting a $20 move is optimistic. Set your spread width accordingly.

    Historical vs Implied Expected Moves

    Compare the implied expected move (from options) to the stock's historical average earnings move. This comparison tells you whether options are cheap or expensive relative to what the stock typically does.

    Overpriced (sell premium):

  • Implied expected move: ±6%
  • Historical average actual move: ±4%
  • Options are pricing in more movement than usual. Sell premium.

    • Underpriced (buy premium):

  • Implied expected move: ±5%
  • Historical average actual move: ±8%
  • Options are pricing in less movement than usual. Buy straddles or strangles.

    • Fairly priced (trade smaller or skip):

  • Implied and historical are within 1% of each other. No clear edge.

    • Using Expected Move for Position Sizing

    The expected move also tells you how much you could lose on a gap. If you own 100 shares of a $195 stock with a ±$8.50 expected move, a one-standard-deviation adverse move costs you $850. A two-standard-deviation move ($17) costs $1,700.

    Size your options positions so that even a 2x expected move gap does not exceed your per-trade risk limit.

    OptionsPilot calculates the expected move automatically on the strike finder, comparing it to the stock's historical average earnings move so you can see at a glance whether premium is overpriced or underpriced.