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Rule of 16

Trading Term

The “Rule of 16” in finance is a way to estimate the daily price movement of a security, especially the S&P 500 (SPX), based on its implied volatility. It suggests that if the implied volatility, often represented by the VIX index, is 16, the SPX might see an average daily move of 1%. The rule is based on the idea that implied volatility is a measure of the expected price movement over a year and dividing that by 16 (approximately the square root of 252 trading days in a year) gives a rough estimate of the daily move. 

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