# Implied volatility and earnings IV crush (Options 101, lesson 5 of 10)

Canonical URL: https://mrkts.gg/learn/options/iv-and-earnings
Last updated: Nov 9, 2026, 9:00 AM ET

> What implied volatility means, how to read an earnings implied move from a straddle, and why options can lose even when you're right.

What you'll be able to do: Explain IV, estimate an implied move from an ATM straddle, and explain IV crush after scheduled events.

## What implied volatility means

Two stocks trade at $50. The first one's at-the-money call costs 1.00. The second's costs 3.00. The second stock's options are pricing a bigger move. That bigger expected move is higher implied volatility, or IV.

> **Key idea:** IV is the market's price for how big a move to expect. It says nothing about which way.

## Reading the implied move

Before earnings, you can read the move options are pricing in. Add the at-the-money call and put. That pair is called a straddle.

Options on a $100 stock with 5 days left and IV 80%, just before a report. Prices per share.

| Strike | Call | Put |
| --- | --- | --- |
| 95 | 6.67 | 1.67 |
| 100 | 3.73 | 3.73 |
| 105 | 1.84 | 6.84 |

1. The 100 call costs about 3.73 and the 100 put about 3.73.
2. The straddle costs about 7.46, which we round to 7.50.
3. Implied move = 7.50 ÷ 100 = about ±7.5%.

It's a rule of thumb. The real move can be smaller or bigger.

## IV crush

After the report the uncertainty is gone, so IV drops, here from about 80% to 35%. The extra price for the event comes out of the options. That's IV crush. A report is one day, so near-dated options carry the biggest share of that event premium.

*Chart (100 call value (per share) against Stock price, priced with Black-Scholes):* Value of the 100 call across stock prices, before and after the report. The after line is lower everywhere, and the gap is widest at 100. The put behaves the same way.

> **Key idea:** Crush hurts long options even when the stock moves your way, if the move is smaller than what was priced in.

## Right on direction, still a loss

1. You pay 7.50 for the straddle, $750 per contract.
2. The stock jumps 5% to $105 and IV falls.
3. The call is worth about 5.00 plus a little time value. The put is nearly worthless. The straddle is about 5.30.
4. 5.30 − 7.50 = −2.20, a loss of about $220.

*Payoff chart at expiration: long 100 call at 3.75, long 100 put at 3.75. Per position: breakeven 92.50 and 107.50, max gain unlimited, max loss $750.* Long 100 straddle bought for about 7.50, at expiration. It breaks even at 92.50 and 107.50.

## Sellers don't always win

| Long straddle (buyer) | Short straddle (seller) |
| --- | --- |
| Wins if the move is bigger than priced in | Wins if the move is smaller than priced in |
| Hurt by IV crush | Helped by IV crush |
| Max loss: the premium | Loss can be large |

> **Watch out:** Crush helps sellers only if the stock stays inside what was priced in. The implied move isn't a promise.

## Worked example: A $100 stock, 5 days to expiration, report after tonight's close

*Illustrative numbers, not real quotes.*

Before the report, IV is about 80%. The 100 straddle (the 100 call plus the 100 put) costs about 7.50, so the implied move is 7.50 ÷ 100 = about ±7.5%.

After the report, with 4 days left and IV down to about 35%, here is the straddle the next day:

| Stock next day | Straddle value | P&L per straddle |
| --- | --- | --- |
| 95 (−5%) | about 5.25 | about −$225 |
| 100 (flat) | about 2.90 | about −$460 |
| 105 (+5%) | about 5.30 | about −$220 |
| 108 (+8%) | about 8.05 | about +$55 |

- Take the +5% row. The call is worth about 5.00 in intrinsic value, and the put is nearly worthless, so the straddle is worth about 5.30. You paid 7.50.
- The flat row loses the most. Both options lose almost all their extrinsic value when IV falls from 80% to 35%.
- The stock was right on direction at 105, and the straddle still lost. Only a move bigger than the implied move made money.

## Practice

The page has 7 practice questions and 5 mastery checks for this lesson, with feedback on each wrong answer: https://mrkts.gg/learn/options/iv-and-earnings

Next lesson: [The greeks in plain words, and strike choice](https://mrkts.gg/learn/options/greeks.md)

Education only, not investment advice. Example numbers are illustrative, not real quotes.

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