The expected move is the range an underlying is implied to trade within by a given expiration, derived from at-the-money implied volatility. It is the options market's own forecast of how far the stock travels — priced, not opined.
Calculating it
The standard approximation:
expected move ≈ spot × ATM IV × √(days to expiration ÷ 365)
A $100 stock with 30% IV and 30 days to expiration:
100 × 0.30 × √(30/365) ≈ 100 × 0.30 × 0.287 ≈ $8.60
So roughly $91.40 to $108.60 by expiration.
The shortcut most traders actually use: take the price of the at-the-money straddle. Buying the call and the put at the strike costs about what the market thinks the move is worth — because that is precisely what it is pricing.
What the bands mean
The 1σ band represents roughly a 68% probability the underlying finishes inside it, under a lognormal model. The 2σ band is about 95%.
Both numbers deserve scepticism. The lognormal assumption underpinning them understates fat tails — real markets gap, and they gap more often than the maths allows. In practice the underlying lands outside the 1σ band somewhat more than one time in three, and far outside it more often than 5% of the time. This is exactly why comparing the implied band against the actual historical distribution of moves is more informative than either alone.
Where it is useful
Strike selection. Selling premium outside the expected move puts you on the right side of the market's own probability estimate. Selling inside it means you are taking the other side of that estimate — sometimes correct, always deliberate.
Earnings. The expected move is the market's read on the binary event. If a stock prices an 8% move and has averaged 4% on the last eight prints, premium is expensive relative to history.
Reality checks. If your thesis requires a 15% move by Friday and the expected move is 3%, you are not making a directional bet. You are betting against the volatility surface, which is a different trade with different odds.
The core limitation
The expected move tells you the magnitude the market expects, not the direction. A 1σ band is symmetric around spot by construction; it has no opinion on which way the stock goes. It is a measure of uncertainty, and treating it as a target is a category error.