# How to assess stock price movement from implied volatility?

Assume that: - The underlying is at 100 - The implied volatility of ATM call/put is 30%.

Then, is it correct that expected 1-standard-deviation move over the next month is calculated as:

$$100 * 30\% \cdot \sqrt\frac{30}{252} = 10.35 ~ \text{points}$$

I am confused as to whether I should be taking the square root or not.

• It's the last time I let you post question with bad formatting. I already asked you nicely to pay attention in your last question. Next one like this will result in a ban. – SRKX Mar 5 '15 at 7:11
• @Victor123 The calculation is correct. For me, the problem with this calculation is that the volatility is a point on the volatility surface and the result not only depends on the moneyness (which you specified) but also on the term of the option. For a stock, you would typically give ONE volatility number OR concentrate on the investment horizon (here, you should probably take an appropriate value for "time to maturity" on the volatility surface). Maybe its better to calculate the stock's volatility directly if possible. – vanguard2k Mar 5 '15 at 11:04

• I'm not sure I understand the "trick". One important thing though: the answer is only correct if the expected return of the stock is $\mu=0$, other wise he needs to add $\mu$ to +/- his result. – SRKX Mar 5 '15 at 7:25
• One would need $\mu$ but an option does not tell you anyting about the drift as it is assume to be the risk free rate (or you look at the implied forward) ... – Ric Mar 5 '15 at 8:04
• @Richard yeah I mean he has to estimate $\mu$ historically or get it somewhere obviously... – SRKX Mar 5 '15 at 8:41