Whether it’s an expiry day straddle or a monthly straddle, what does it indicate. As far as I know it indicates that there’s a 68% chance of the market closing within that range by expiry.
But another youtube video said that we should multiply the Straddle price by 85% and that is the expected move.
Another youtube video said that the Straddle price should be divided by 2, and that’s the expected move on any side.
So I this has me confused.
Of course I know that the market can move as much as it wants on any side at any time. But what does the Straddle price indicate in theory. Just wanted to clear the confusion.
@Sensibull
The value of the straddle on expiry will be higher if the IV is higher. IV gives you the idea of expected fluctuation.
It was a specific question. You wrote a general answer which most people including me already know.
ATM straddle price indicates the market’s expectation of future price volatility for the underlying asset. If the ATM straddle price is high, it suggests that traders anticipate a significant price movement in either direction, up or down. Conversely, a low ATM straddle price suggests that the market expects relatively low price volatility.
Current Price of Underlying Asset = Call Option Price – Put Option Price + PV(x)
where: PV(x) = the present value of the strike price (x), discounted from the value on the expiration date at the risk-free rate
Put call parity – read here
I’m asking about how much it actually indicates. If BN atm straddle is 250 on expiry day then what move does it indicate in number terms. Answer this specific question.
If I asked you what is 500-300 and you write “subtraction is done by reducing the smaller number from bigger number” how would it look? I’m looking for the specific answer which is 200 in this case.
I didn’t ask about put call parity.
I asked in very specific words what the price of a straddle indicates. And yes i know high price indicates high moves and low price indicates low moves.