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Tom Preston Invented the Expected Move. Here's How to Actually Use It.
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ticker lesson
Breakdown
0:00lesson
Expected range and option pricing
- Expected range = volatility-based price change magnitude
- Option prices ignore bullish/bearish bias
- Focus on probability of being in the money
- Expected move numbers help traders
2:24SPY· ticker
SPY — expected move calculation
- 1.66, 4.88, 6.48, 8.70 = 7-day/42-day expected ranges
- 60% at-the-money straddle + 30% first strangle + 10% second strangle
- 12.21 = weighted average expected move
- Volatility estimates adjust with option price changes
4:51SPY· ticker
SPY — volatility calculation method
- Weighted average of at-the-money straddle + out-of-the-money strangles
- Historical floor trading method adapted for modern platforms
- IVX = VIX-style calculation for 42-day SPY options
- 17.8 = 28-day SPY volatility estimate
7:50META· ticker
META — volatility and expected move
- 52.2 = 28-day META volatility estimate
- One standard deviation range = ±$3.47 for 0-day expiration
- Implied volatility captures out-of-the-money options
- Expected move = 64.93 based on full volatility data
10:19lesson
Volatility statistics and probability
- 68% probability within ±1 standard deviation
- 95% probability within ±2 standard deviations
- Implied volatility differences affect probability calculations
- Market volatility impacts option pricing and range estimates
12:40META· ticker
META — probability and strike analysis
- 47.45% implied volatility for 510 put
- 16% probability outside ±1 standard deviation
- Implied volatility differences create range discrepancies
- Risk-reward analysis guides put spread strategy
12:41lesson
Volatility metrics and trading guidance
- Three volatility types produce different range estimates
- Expected move numbers provide directional guidance
- Traders must assess risk-reward ratios
- Metrics inform strategy but not direct trade recommendations
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