SUMMARY: Several methods exist to estimating the Market Move from looking at historical performance, complex mathematical formulas, to Options pricing, etc…
No matter your preferred method, it is certain to provide you with an edge for the expected magnitude of the price movement.
- MMM (Market Maker Move)
- Options Expiration
- Standard Deviations (Normal Distribution)
- Option Price
Method #1: Market Maker Move
Market Maker Move (MMM) estimates today's price range. It is best employed for binary events:
- FOMC Meetings
- Jobless Claims
Method #2: Options Expiration
Options expiration is a great way to determine the Implied Volatility for future dates.
- Next 7 days an expected move of 8.26% ($24.14) to the up/down side.
- Next 35 days an expected move of 10.22% ($64.96) to the up/down side.
Method #3: Standard Deviation
Using the Probability of Expiring Cone indicator based on the Normal Distribution 1 Sigma (68%).
- Next 7 days between 2588 and 2515
- Next 35 days between 2630 and 2477
Method #4: Option Prices
Using Probability ITM (In The Money) closest to 16% reflects the implied “skewed” price range for the next 35 days
- OTM CALL 2600
- OTM PUT 2460
Source of reference:
The references below are not investment recommendations, but rather sources for you to check (ie. get to know what is out there)
- Thinkorswim (www.tdameritrade.com)
- TastyTrade (www.tastytrade.com)
- Option Alpha (www.optionalpha.com)
- TheoTrade (www.theotrade.com)
This blog is a summary of the “Expected Market Move” presentation made by Gonzalo Peres