What the Market's "Expected Move" Really Means Before Earnings
It's a price, translated into a range
Every earnings season, headlines say things like "the options market is pricing a 6% move" for some stock. That number doesn't come from a survey of analyst opinions or a magic prediction engine — it comes directly from the price of an at-the-money straddle (buying the ATM call and the ATM put with the same expiration). A straddle only makes money if the stock moves far enough to cover what you paid for both legs, so the straddle's price, converted to a percentage of the stock price, is the market's breakeven distance. That breakeven distance, adjusted slightly, is what gets quoted as "the expected move."
Where the 0.85 factor comes from
A raw ATM straddle price actually overstates the one-standard-deviation move slightly, because it's pricing the full distribution of possible outcomes, not just the 68% confidence band that "one standard deviation" refers to. The standard adjustment — used across most retail and institutional platforms — is to multiply the straddle price by roughly 0.85 to arrive at the 1σ expected move. So a $10 ATM straddle on a $200 stock implies roughly $8.50 of expected movement, or about 4.25% in either direction. That 0.85 factor is an approximation for a lognormal price distribution, not an exact constant, but it's close enough to be the industry convention.
A range, not a point estimate — and not a guarantee
The single most common misreading is treating the expected move as a prediction of where the stock will land. It isn't. It's a probabilistic band: under the standard assumptions, the stock should close within that ±1σ range roughly 68% of the time and outside it about 32% of the time — meaning a stock blowing through its expected move after earnings isn't a broken model, it's the expected tail outcome happening on schedule some fraction of the time. The expected move also says nothing about direction. A straddle price is symmetric by construction; it tells you how far, not which way.
Why the move shrinks as expiration gets closer
Expected move scales with the square root of time, not time itself — a consequence of how volatility compounds under the standard options pricing assumptions. That means a 30-day expected move isn't three times a 10-day expected move; it's closer to √3 (about 1.73x) times larger. This is also why the expected move implied by this week's expiration is almost always tighter than the one implied by next month's: less calendar time between now and expiration means less cumulative uncertainty for the straddle to price in, all else equal.
What it's actually useful for
Despite the caveats, the expected move is one of the more honest numbers in options trading, because it's just the market's own pricing, not someone's opinion layered on top of it. It's useful for sizing an iron condor or strangle around realistic boundaries instead of arbitrary strike distances, for sanity-checking whether a stock's post-earnings gap was "big" relative to what was priced in versus merely big in absolute terms, and for comparing how much uncertainty the market is pricing into one name's earnings versus another's on the same day. Overlaying that implied range directly on a price chart — rather than doing the straddle math by hand — is what OptionScope's Expected Move Calculator and the Expected Move overlay in the workspace are built for: brackets computed from real ATM straddle pricing, plotted against the stock's actual candles through the event date.
For the volatility mechanics underneath the straddle price itself, the implied volatility primer is the right next stop.