The theory behind is adopted in the Black Scholes Option Pricing model, this assumes the asset price follows the GBM, shown below, and estimates the range where the price will fall into on the specific date and probability.
dS = a dt + v dW
Assuming the drift term is zero, this GBM Band applies the same model and helps you to quickly assess the suitable range to set up your option strategies with simple setting:
Length – number of bars covered
Vol Multiple - the z-score of the probability
Default values of the Length and Vol Multiple are set to 20 bars and 2.0 z-score respectively.
You can find an example how the GMB Band work.
You can also applies this GMB Band like how Bollinger's Band does for swing trade or breakaway trade.
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