Definition
Implied Move
The implied move is how far the market expects a stock or index to swing by expiry, derived from option premiums.
The price of the at-the-money straddle gives a quick estimate of the expected move: if the Nifty weekly ATM straddle costs a certain number of points, the market is roughly pricing that as the one-standard-deviation swing by expiry. It tells you the range options are pricing in.
Indian traders compare the implied move with their own view before an event — results, the Budget, RBI policy — to judge whether options are cheap or expensive. If they expect a bigger move than the implied one, buying a straddle makes sense; if smaller, selling premium does.
Related terms
- Long StraddleA long straddle buys a call and a put at the same strike to profit from a big move in either direction.
- Break-even Point (Options)The break-even point is the underlying price at which an option strategy neither makes nor loses money at expiry.
- India VIXIndia VIX is the volatility index that measures the market's expectation of near-term volatility, often called the 'fear gauge'.
- Implied VolatilityImplied volatility (IV) is the market's forward-looking estimate of how much a stock or index will swing, backed out from current option prices and expressed as an annualised percentage.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.