Straddle approximation
Definition · Level 5 · Greeks & volatility
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ATM straddle ≈ 0.8 × S × σ × √T; desks read the straddle price as the market’s priced move (about 0.8 of a 1-SD move).
Example
Stock 120, weekly straddle 6.00 → ±5% priced.
Where Tradecraft teaches it
Level 5 · Greeks & volatility, in the lesson “Expected move, the rule of 16 & the VIX”: Turn annual vol into dollar moves, read a straddle as the priced move, and decode the VIX curve.
Related terms
- Expected moveThe ±1 standard-deviation range priced by implied vol: S × IV × √(days ÷ 365); about 68% of outcomes land inside it under a normal approximation.
- Rule of 16Shortcut turning annualized vol into a typical (one-standard-deviation) daily move: divide by 16, because a year has about 252 trading days and √252…
- VIXCboe index of 30-day implied volatility on the S&P 500, computed from a whole strip of out-of-the-money SPX puts and calls (variance-swap style)…
- VIX backwardationInverted VIX futures curve — spot and front months above later months.
- VIX contangoThe usual, upward-sloping shape of VIX futures: later months above spot, as vol is expected to drift back up from calm levels toward its average and…
- 25-delta optionThe OTM call or put whose delta is ±0.25 — the standard reference strike for quoting skew; very roughly a 1-in-4 chance of finishing in the money.