Sunday, March 7, 2010

EM for $OEX until March 19 2010

The Expected Move (EM) to calculate how much the underlying will move until expiration.



EM = 1/2(UP*IV*Sqrt DUE) / Sqrt 252
UP =
$520.45
IV =
17.11%
DUE (days) = 12
Sqrt DUE = 3.46
Sqrt 252 = 15.87
EM = $9.72


This means that 34% of the time, $OEX will move $9.72 in one direction.  The other way to interpret this number is that 68% of the time, $OEX will stay within the range of $510.73 and $530.17.

This is the best way to push your luck over the long term if your position is threatened and need to "sweat it out". 

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