For example, ITC shares are trading at Rs 200 with an Implied Volatility (IV) of 20% and 30 days to expiry.
Hence, 1 SD move
= ( 200 * 20% * square root of 30 ) / square root of 365
Based on its current IV, a stock generally ends up within:
- 1 standard deviation of its original price 68% of the time,
- 2 standard deviations of its original price 95% of the time, and
- 3 standard deviations of its original price 99% of the time.