Not every chart needs a trade. Sometimes the job is simply to identify where the risk/reward starts becoming interesting. While screening for potential shorting opportunities, I came across this setup. The idea was to combine market structure + liquidity + imbalance + trend rather than short simply because price was falling. ๐ What caught my attention? 1️⃣ Bearish structure Price had already experienced a strong decline and was trading below a downward-sloping moving average. That suggested that the broader momentum was still favouring sellers. 2️⃣ Equal High = liquidity above The Equal High marked on the chart is an area I would watch closely. Rather than assuming resistance will hold, I look at clustered highs as a potential area of buy-side liquidity. A move toward or through that area can become important when assessing a potential reversal. 3️⃣ IFVG — potential resistance The purple Inverse Fair Value Gap (IFVG) becomes the key area I'm watching. If price retraces into this z...
One of the most useful concepts in options analysis is the Expected Move - a way to estimate how much a stock could move over a given period, purely based on what the options market is pricing in. It doesn't predict direction. It defines a range.
When you look at an option's Implied Volatility (IV), you're essentially seeing the market's collective forecast of future price movement.
The Expected Move formula converts that into a price range:
๐๐ป Expected Move = ATM Strike Price × IV × √(Days to Expiry / 365)
Three inputs. That's it.
๐๐ปATM Strike Price - where the underlying is trading
๐๐ปIV - the market's implied volatility for that expiry
๐๐ปDays to Expiry (DTE) - how many calendar days until the contract expires
The result tells you the range within which the market statistically expects the price to stay with approximately 68% probability (one standard deviation).
Why It Matters?
Options are priced around this range. Strike selection, spread construction, and premium assessment all become more meaningful when you understand what the market has already "priced in"as a probable move.
A high IV environment means a wider expected move and higher premiums.
A low IV environment means a tighter range and cheaper options.
Understanding this helps frame whether a move has already been anticipated by the market, or whether it comes as a surprise.
Disclaimer: This post is for educational and informational purposes only, illustrating options concepts through hypothetical data. It does not constitute investment advice or a recommendation to buy or sell any security or derivative.
K
KopyTrade
Learn. Analyse. Understand the Market.
CHARTS & SETUPS
Charts, Setups & More
Follow @sunilic83 on X for charts, technical setups, market observations and more.
๐ Follow on X →
For informational and educational purposes only.
Not investment advice, recommendations, or trading signals.