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What is IV crush, and why do options lose value after earnings?

By Daniel, The Philosopher Investor · updated October 2, 2026

IV crush is the sharp drop in implied volatility right after a scheduled event. Before earnings, options price in a large unknown move, so they are expensive. Once the numbers are out the uncertainty is gone, implied volatility falls, and option prices fall with it. A call can lose money even when the stock moves in your direction.

Why do options get expensive before earnings?

An earnings date is a known unknown. Everyone knows the day, nobody knows the number, so demand for options rises into it. Sellers charge more for taking the other side of a jump they cannot predict. Both sides know the date is coming, so the premium builds in a fairly predictable way over the final week.

Implied volatility is the market's price for that uncertainty. In the days before a report it climbs, often far above where the stock has actually been moving. The nearest expiration rises most, because it carries the event with almost no time left to recover from it.

What happens the morning after?

The report lands and the unknown becomes a fact. Implied volatility on the front expiration collapses, often back toward its normal range within minutes of the open.

That collapse hits every option on the name at once. Calls and puts both lose the premium that was there to cover the event. The drop is largest in the contracts closest to expiry and closest to the money, which are the ones retail buyers favour. Longer expirations hold more of their value, since the event was only part of what they were pricing.

Why can a correct call still lose money?

Say the stock rises three percent on the report. Your call gains from the move and loses from the volatility drop. If the options were priced for a seven percent move, the loss from the volatility drop can be larger than the gain from the price change.

That is the trap. Being right about direction is not enough when the option was priced for a bigger move than the one that arrived. Buyers of short-dated options into earnings need the stock to beat what was priced, not merely to go the right way.

How do you work out what is priced in?

The quickest estimate is the at-the-money straddle. Add the price of the call and the put at the strike nearest the stock, for the expiration just after the report, and divide by the stock price. That percentage is roughly the move the options are paying for.

Compare it with what the stock has actually done on recent reports. A name that typically moves four percent with options priced for eight is expensive. A name priced for three that regularly moves six is the reverse. Neither is a signal by itself, and both change the odds.

What can you do about it?

One answer is to avoid buying short-dated options through the event. Longer expirations carry less event premium relative to their price, so the crush takes a smaller bite, though they cost more up front.

Another is to use a structure where you sell some of the inflated premium against what you buy, such as a spread. That caps the gain and cuts what you lose to the volatility drop. Selling premium outright ahead of a report is the aggressive version, and it carries the full gap risk. Whichever route you take, decide before the report, because the pricing changes the moment it lands.

Common questions

How much does implied volatility drop after earnings?
Enough to matter, and the size varies by name. Front expiration implied volatility often falls back toward its typical range within the first minutes of trading, which can be a large percentage drop from the pre-report level. Longer-dated contracts fall less, since they carry less event premium to begin with.
Does IV crush happen after other events?
Yes. Any scheduled event with a binary feel does the same thing: drug trial results, regulatory decisions, major product launches, and macro releases for index options. The pattern holds, with volatility bid into the date and released once the outcome is known.
Can I profit from IV crush?
Selling options before the event and buying them back after is the direct way, and it carries the risk of the gap you were paid to absorb. One bad report can cost more than many good ones earned. Defined-risk structures such as spreads are the common compromise.
Why do my calls lose value when the stock is flat after earnings?
Because the premium you paid included the event. Once the report is out, that part of the price disappears whether the stock moved or not. A flat reaction is the worst case for an option buyer, since the volatility drop arrives with no price gain to offset it.
How do you judge whether options are expensive before earnings?
Compare the implied volatility of the expiry just after the report with the same name's implied volatility a month out, and with where it sat before the last few reports. A level that looks high in isolation can be normal for that company at that point in the cycle.
Why does implied volatility rise into the report?
Because the option has to cover a known event with an unknown outcome. Sellers demand more to carry that risk and buyers pay it. The closer the date, the more of the option's remaining life is taken up by the event, which is why the front expiry inflates the most.
When does the drop happen?
In the first seconds of trading after the numbers are public, usually at the open the next morning. By the time you can act on the news, the volatility has already gone.
Is selling options into earnings a good trade?
It collects the inflated premium and it carries the whole gap risk. The payoff is small and frequent, and the losses are rare and large. Traders who do it size for the bad outcome and often define the risk with a spread rather than selling naked.
What happens to my position if the stock barely moves?
A long option loses, sometimes badly. The premium you paid included a large allowance for a move that did not arrive, and that allowance is removed at the open. A short option position gains for the same reason. This is the case that surprises beginners most often.
Does the crush reach longer dated options?
It touches them and the effect is much smaller. One quarterly report is a small part of the uncertainty in an option with a year to run, so its implied volatility barely moves. The crush concentrates in the expiry that contains the event and fades as you go further out.

More questions

What is dark pool volume, and what does it tell you? What is the difference between a sweep and a block in options flow? How do you track stock trades by members of Congress?

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