Earnings & IV Crush: How Implied Volatility Collapses on Report Day
In the days before earnings, IV on the underlying typically ramps higher as the market prices in uncertainty. Within minutes of the report, IV collapses — often 30–50% — regardless of whether the stock moved up, down, or not at all. That collapse is IV crush, and understanding it separates serious options traders from gamblers.
The mechanic: pre-earnings, IV must price in a binary event with potentially large outcomes. Once the report is released and the market digests the results, that uncertainty is resolved, and IV normalizes to its post-event level. The total move on the underlying may be small, but the change in IV is dramatic — and any long-premium position that was banking on a big move can be killed by IV crush even if the directional thesis was correct.
Practical implication: avoid buying premium into earnings unless your thesis specifically requires a move larger than the implied move (the 'expected move' baked into the option chain). Selling premium into earnings is structurally favored by the IV crush, but the realized move occasionally exceeds the implied move catastrophically — which is why naked premium selling around earnings is widow-maker territory without defined-risk structures.
Frequently Asked Questions
How big is a typical IV crush?
On large-cap stocks, IV often falls 30–50% in minutes after the report. On meme-stocks or biotech with binary events, it can be 60%+.
What's the safest way to trade earnings?
Defined-risk structures: iron condors or iron butterflies sized to survive the implied move. Premium-selling logic without the unbounded tail risk of naked positions.