Jun

9

The 1-Day Expected Move calculation is the practical application of the "Rule of 16" described by Euan Sinclair and other volatility traders.

The Rule of 16 is a mathematical heuristic used to convert annualized implied volatility (the number you see on a quote screen, like 16%) into a daily expected move. The rule is derived from the "square root of time" principle in the standard deviation formula. Since there are approximately 252 trading days in a year, and the square root of 252 is roughly 15.87 (which traders round to 16). Divide VIX by 16 and get the percent expected daily move.

Or consider Parkinson absolute volatility, Expected Daily Absolute Range. By scaling the current VIX using the Parkinson volatility framework, calculate the total expected intraday path length - the absolute breadth from the high print to the low print of the session, independent of the previous day's close.

Useful but occasionally very wrong, like Friday. But a midday update of abs vol after Vix jump provided a fairly good bottom number.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search