Calculation and mechanics
The straddle price is the sum of the prices of the at-the-money call and put. At expiration, the break-even points of a long straddle lie roughly at the strike plus or minus the total premium paid.
Under simplifying model assumptions, the expected absolute move for normally distributed returns is around 80% of one standard deviation. The straddle price and an expected move of one standard deviation are therefore not the same quantity.
For ETFs with wider strike spacing, the at-the-money strike rarely sits exactly on the current price. The straddle is then built from the nearest available strike of the respective expiration.
Straddle price = ATM call price + ATM put price
Distinction
In Foliograph, the expected move is calculated as a one-standard-deviation move from the implied volatility. The ATM straddle, by contrast, provides an estimate of the priced-in absolute move derived directly from option prices. The two quantities are closely related but not identical.
Related terms
- Expected Move (EM, one standard deviation move)
- Implied Volatility (IV)
- IV Term Structure (Volatility Term Structure)
- Expiration (Expiry)
- Option Strategy (Spread, Iron Condor, Covered Call)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.