By searching online, I have found three methods to compute the expected move of a stock based on option prices and implied volatilities:
Method 1: Extract the price of a Straddle ATM of the front month
--> Exp_Move = (call ATM + put ATM)
Method 2: Take the price of a Straddle ATM of the front month and multiply it by 0.85
--> Exp_Move = (call ATM + put ATM)*0.85
Method 3: Compute the expected move by scaling the implied volatility of the nearest expiration
--> Exp_Move = Stock_Price * IV/100 * SQRT(n/365)
DOUBT NO. 1: Which one is the most accurate one between method 1 and method 2? Where does the "0.85" come from?
DOUBT NO. 2: To compute the Exp_Move with Method 3 I need the IV... I still do not understand how I can compute the IVx of the front month expiration based on the implied volatility of the options with that expiration. Is that a sort of weighted average of the implied volatilities? I noticed on tastyworks's website this description:
Implied Volatility (IVx): The implied volatility (IVx) metric displayed in the option chain is calculated using the VIX-style calculation described at the following link.
However, this seems something almost impossible to reproduce based on historical option data provided by OptionMetrics. Is there a way to reach very accurate estimation of the IVx based on the implied volatilities or the prices of the options of that precise expiration?
I attach a couple of pictures of the same option chain where I explain what I am trying to compute... (By the way... I have no idea why two different brokers platforms provide slightly different IVx values...).
Image 1 - Option chain on tastyworks IVx:
Image 2 - Option chain on thinkorswim IVx: