OptionCortex

IV crush and earnings

Why options can lose value after the event passes

Before earnings, implied volatility often rises because traders price a larger move. After the report, uncertainty can collapse and option premium can fall even when direction is right.

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What IV crush means

IV crush is the drop in implied volatility after a known event, such as earnings. Long options can lose value from lower IV even if the stock moves in the expected direction.

Formula

A simple vega estimate is: option price change = Vega x change in IV points. If IV falls by 35 points and Vega is 0.18, the estimated price change is 0.18 x -35 = -$6.30 per contract share.

Example

A call worth $8 before earnings with 0.18 Vega could drop near $1.70 from IV crush alone if IV falls from 80% to 45%, before considering Delta, Gamma, and Theta.

Risk reminder

This estimate isolates vega. Earnings gaps, skew changes, liquidity, time decay, and direction can dominate the final option price, especially in short-dated contracts.

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