Options Implying future stock price?

[cfredstan]

How do options imply a movement in the stock? I have heard people say, "the options are implying that XYZ will move 10%". How do they calculate this?

 

[dagnyt]

Quote from cfredstan:

How do options imply a movement in the stock? I have heard people say, "the options are implying that XYZ will move 10%". How do they calculate this?

Assume earning news is tonight. Tomorrow the stock may move as a result of the news.

Using the implied volatility, the one day standard deviation move is calculated. By definition, a move that size OR LESS, will occur 68% of the time, and a larger move will occur 32% of the time.

That standard deviation move is the 'implied' one day move for the stock.

Mark

 

[Kevin Schmit]

Quote from dagnyt:

That standard deviation move is the 'implied' one day move for the stock.

No, the implied move is the one day ATM straddle anticipated breakeven, calculated using your tomorrow's anticipated IV.