Understand why option premiums can fall after a known event even when the underlying moves in the expected direction.
Before the event
Earnings, regulatory decisions and major announcements can widen the distribution of expected outcomes. Buyers bid for optionality, and market makers may demand more premium to warehouse gap risk, raising IV.
After uncertainty resolves
Once the result is known, the next session no longer contains that binary event. IV can fall sharply and remove extrinsic value from both calls and puts, even though time to expiration remains.
Managing crush risk
Compare the move implied by option prices with the move your thesis requires. Model price and IV changes together, consider defined-risk spreads, and size long premium so a correct direction with an insufficient move is survivable.
A practical example
A trader buys a call before earnings. The stock rises 3%, but options had priced a 7% move and IV collapses afterward. Delta gains may be smaller than the combined vega and theta loss, leaving the call down.
This simplified example holds other inputs constant to isolate volatility exposure. Live option prices also reflect the underlying price, time decay, rates, dividends, liquidity and transaction costs. Greeks are theoretical estimates, not guarantees.
Frequently asked questions
Does IV always fall after earnings?
It commonly falls when event uncertainty disappears, but the size is not guaranteed.
Can sellers lose during a crush?
Yes. A stock move can overwhelm the benefit from falling IV.
Do spreads avoid crush?
They can reduce net vega but introduce caps, multiple legs and other risks.
Continue the Vega & Volatility cluster
Explore related guides: Vega and Implied Volatility Around Earnings · Vega and Volatility: 10 Mistakes to Avoid · How to Calculate Option Vega. For a structured sequence, use the free Level 6 – Vega & Volatility course.
Options involve risk and are not suitable for every investor. This material is educational and is not investment, tax or legal advice. Greeks are theoretical estimates, and contract terms and broker requirements can vary.