Plan a Trade · Lesson 2 of 9

Implied Volatility, IV Rank and the Expected Move

Turn implied volatility into a dollar range, estimate the expected move from the straddle, judge whether IV is high for a stock, and see how IV crush can sink a trade that was right on direction.

8 min readIntermediateModule 1: Greeks, Volatility and GEXUpdated Oct 8, 2026

In this lesson

Convert implied volatility into a one-day move and a one-standard-deviation move
Estimate an expected move from the at-the-money straddle and know which definition a screen is using
Compare IV rank with IV percentile and spot when they disagree
Explain IV crush around earnings with a worked example

Implied volatility is the volatility number that makes a pricing model match an option’s market price. It’s quoted as a yearly percentage, and it measures the size of the move the market is paying for, not its direction. When options get more expensive with nothing else changed, IV rises. Three conversions turn it into something you can see on a chart.

One day: IV ÷ 16
A year has about 252 trading days and √252 ≈ 16, so IV ÷ 16 is a one-standard-deviation (1σ) one-day move. At 16% IV, that’s about 1% a day; about two days in three come in smaller.
Any period: the 1σ move
Price × IV × √(calendar days ÷ 365) gives the 1σ move for any period. With trading days, use ÷ 252 instead; for one trading day, that’s the ÷ 16 rule. Under the model’s bell-curve assumption, price finishes inside it about 68% of the time. Real markets have fatter tails, so big moves happen more often than the bell curve implies.
The straddle shortcut
At expiration, an at-the-money straddle is worth exactly how far price ended from the strike, either way. So its price today is roughly what the market charges for an average-size move, about 0.8 of the 1σ move. Some platforms quote the expected move as about 0.85 × the straddle’s price, a rule of thumb that gives a tighter range still.

Example Three “expected moves” for one stock

A hypothetical stock trades at $200 with 30-day IV at 30%. One day: 30% ÷ 16 ≈ 1.9%, about $3.75. Thirty days at 1σ: $200 × 0.30 × √(30 ÷ 365) ≈ $17.20. The 30-day at-the-money straddle costs about $13.72, and 0.85 × $13.72 ≈ $11.66. Each of these gets called “the expected move” somewhere, so check which one a screen shows before you compare numbers. None of them is a boundary: price often finishes inside the range and regularly breaks out of it.

Implied volatility is a price, so it helps to judge it two ways. First, against what actually happens. Realized volatility measures how much the stock really moved over the same period. On average, IV has tended to run a little above the volatility that followed, a gap called the volatility risk premium. That’s an average across many periods, not a rule for any one week: in a sudden sell-off, realized volatility can run far above what was implied. Second, against the stock’s own past. Is 28% IV high? It depends on the stock: lofty for a utility, quiet for a small biotech. Two measures compare today’s IV with the stock’s own past year, and they can disagree. Either way, a high reading means options are expensive relative to that history. It doesn’t mean IV has to fall next. Platforms also differ on which IV they rank, often a 30-day at-the-money reading, and over what window, so compare readings from one source.

IV rank

IV rank places today’s IV in its past-year range: (current − low) ÷ (high − low) × 100.
Example: IV ranged from 18% to 58% and is 28% today, so (28 − 18) ÷ (58 − 18) × 100 = 25.
One extreme spike stretches the range and drags the reading down for a year.

IV percentile

The share of past-year days when IV was lower than today.
Same stock: the 58% came from one week of panic, and IV sat between 20% and 26% on most days, so 28% is higher than about 9 in 10 of the year’s days: about 90.
It counts days, so a single spike barely moves it.

IV crush around earnings

Before a scheduled event such as earnings, the nearest expiration carries extra IV because a big gap is possible. Once the news is out, that uncertainty is gone and IV usually drops sharply at the next open. That drop is IV crush. It hits the nearest expiration hardest, because the event is a big share of its remaining life, and at-the-money options most, because their whole price is extrinsic value: the part that isn’t already locked in by where the stock trades. To read an event’s expected move, use the first expiration after the report. A later expiration mixes the event with many ordinary days, which dilutes it.

Example Right on direction, still behind

A hypothetical $100 stock reports after the close. Its weekly options expire in three days and carry 90% IV, so the $100 call costs $3.25 and the straddle $6.51. That implies an expected move of about 0.85 × $6.51 ≈ $5.53. The next morning, with two days left, the stock opens at $103, up 3%, and IV falls to 35%. The call is now worth about $3.17, a loss of about $8 per contract on a correct direction. The straddle is worth about $3.33, down nearly half, because the move was smaller than the one priced in. Had IV stayed at 90%, the same $3 move would have lifted the call to about $4.46; the drop to 35% took about $1.29 of that away.

Check your understanding

5 questions. Answer each one, then open “Show answer” to compare.

Question 1 of 5 A $100 stock has implied volatility of 32%. Using the divide-by-16 rule, about how big a one-day move is priced in, in dollars?
Your answer$
Show answer
Answer: 2 $ (anything within ±0.1 $ counts).
32% ÷ 16 = 2%, and 2% of $100 is $2. That’s a one-standard-deviation day under the model, not a cap: some days move more, many move less.
Question 2 of 5 Over the past year a stock’s IV ranged from 15% to 45%. Today it’s 24%. What is its IV rank?
Your answer
Show answer
Answer: 30 (anything within ±0.5 counts).
(24 − 15) ÷ (45 − 15) × 100 = 9 ÷ 30 × 100 = 30. IV percentile could be quite different if most days sat near one end of the range.
Question 3 of 5 The day before earnings, a stock’s at-the-money straddle for the nearest expiration costs $8.00. What expected move would a platform using the 0.85 rule of thumb show for that expiration?
About $6.80, either wayAbout $8.00, upward onlyAbout $13.60, either wayAbout $0.85, either way
Show answer
Answer: A. About $6.80, either way
0.85 × $8.00 = $6.80, in either direction. The straddle’s full price is a slightly wider version and the 1σ formula wider still; none of them says which way price will go.
Question 4 of 5 If a stock moves in the direction you expected after earnings, a call you bought before the report must be worth more than you paid.
TrueFalse
Show answer
Answer: False.
IV crush can remove more value than the move adds. In the lesson’s example, a $3 rise after the report still left the call below its $3.25 cost because IV fell from 90% to 35%.
Question 5 of 5 Put the typical earnings sequence for the nearest expiration in order. Put these in order, first to last.
1. Implied volatility climbs as the report approaches
2. At the next open the uncertainty is resolved and IV drops sharply
3. Options lose extrinsic value even though the stock moved
4. The company reports after the close
Show answer
Correct order:
1. Implied volatility climbs as the report approaches
2. The company reports after the close
3. At the next open the uncertainty is resolved and IV drops sharply
4. Options lose extrinsic value even though the stock moved
Event IV builds into a known date, then collapses once the news is out. That’s why a move smaller than the expected move often leaves option buyers behind.

Key takeaways

Implied volatility is the size of move option prices imply, quoted yearly; divide by 16 for a 1σ day.
The 1σ formula, the straddle price and 0.85 × the straddle give different “expected moves”, so know which one you’re reading.
IV rank and IV percentile compare IV with the stock’s own history and can disagree after a spike.
Event IV usually collapses after earnings, so a correct direction can still lose money.

Try it in StratosHedge

Open the GEX Matrix for SPY and click the at-the-money strike in the last expiration column, a few days out. Add the call and put mid-prices (halfway between bid and ask) to get the straddle. Then compare 0.85 × the straddle with price × IV × √(calendar days ÷ 365), using the IV shown in the popup. Which “expected move” is larger, and by roughly how much?

Price a straddle yourself Needs: Retail plan

Key terms

Implied volatility (IV): The future volatility that option prices imply, quoted as an annual percentage. Higher IV means pricier options.
Straddle: A call and a put at the same strike and expiration. Bought, it gains from a big move either way; sold, it gains if price stays near the strike.
Expected move: The size of move option prices imply by a given expiration, often estimated from the at-the-money straddle’s price. It’s a range, not a direction.
Realized volatility: How much a stock actually moved over a past period, quoted as a yearly percentage so it can be compared with implied volatility.
Volatility risk premium: The tendency for implied volatility to run above the volatility that later occurs, on average. Option sellers earn it in exchange for occasional large losses.
IV rank: Where today’s implied volatility sits within its range over the past year, from 0 (the low) to 100 (the high).
IV crush: A sharp drop in implied volatility after a known event such as earnings passes, which deflates option prices even if the stock moves.
Extrinsic value (time value): The part of an option’s price above its intrinsic value: what you pay for time and the chance of movement. It shrinks to zero by expiration.
IV percentile: The share of days over the past year when implied volatility was lower than it is today. Unlike IV rank, a single spike barely moves it.

Sources and further reading

Educational content, not investment advice. Lessons describe how markets and models tend to behave. They don’t tell anyone what to buy, sell or hold. Interactive examples use illustrative sample data, and simulator results are simulated — not actual trading. Options involve risk and are not suitable for all investors.

Risk disclosure Characteristics and Risks of Standardized Options (OCC) (opens in a new tab)