Rule of 16 calculator

Where the 16 comes from

Implied volatility is quoted as an annual number, but volatility does not scale linearly with time — it scales with the square root of time. To convert an annual figure to a daily one you divide by the square root of the number of trading days in a year. A year has about 252 trading days, and √252 ≈ 15.87, which rounds to 16. So the rule of 16 is just that: annual IV ÷ 16 ≈ the expected one-day move in percent. A stock with 32% IV is pricing in roughly a 2% daily move; one at 80% IV, about a 5% move. Run it the other way — multiply a daily move by 16 — and you recover the annual IV the market is implying.

Using it in your head

The whole point is speed. You do not need a spreadsheet to sanity-check an options screen: if a stock's IV is 48, you instantly know the market expects roughly a 3% daily swing, and you can judge whether today's actual move was inside or outside that. Before earnings the trick is especially handy — back out the implied daily move, compare it to the stock's typical day, and you can see at a glance how big a reaction options are paying for. It is the same √time mathematics behind the expected-move calculator, stripped down to one division.

It is a shortcut, not a law

The 16 is an approximation: the true divisor is 15.87, and the convention of 252 trading days is itself a round number, so the rule runs very slightly hot. It also assumes a normal distribution of daily returns and says nothing about direction — it gives a symmetric band, not a target. For anything precise, use the full expected-move calculation; for a quick desk check, the rule of 16 is close enough. Pair it with the implied-volatility calculator to read an IV off a live option first.

Educational tool only — not financial advice. An approximation, not a precise forecast. Options trading carries a high level of risk.