IV Crush After Earnings
What is IV crush?
IV crush is the sharp drop in implied volatility on the first session after an earnings release. Once the event risk is out of the way, the market no longer needs such high option premiums.
- IV builds into the event (IV rush).
- After the release, IV resets closer to “normal”.
- That reset can be brutal for long premium positions held through the print.
How IV crush shows up in P/L
For long options (calls, puts, straddles, strangles):
- Even if the stock moves in your favor, the loss of IV can offset a big chunk of gains.
- If the move is smaller than the implied move, long premium can lose heavily.
- The closer you are to expiry, the more concentrated the crush tends to be.
For short options (short vol):
- IV crush is your friend if the stock doesn’t massively outrun the implied move.
- You profit from both time decay and volatility reset.
- But if the stock gaps outside your breakevens, losses can be large, especially for naked shorts.
Key point: IV crush is not a “bonus”. It’s already priced into the implied move. If you’re long volatility,
you need the stock to move enough that gains overcome both crush and theta.
Which structures are most exposed?
High exposure to IV crush
- Naked long straddles and strangles in the closest expiry.
- Deep OTM long calls/puts bought purely as lotto tickets.
Moderate exposure
- Debit spreads (call spreads, put spreads) in the event expiry.
- Inverse butterflies / inverse condors: still long vol but with some short premium to soften crush.
Short-vol structures
- Iron condors and butterflies can benefit from crush if the move is inside the structure.
- Naked short straddles/strangles benefit from crush but carry large tail risk on outlier moves.
How EarningsWatcher models IV crush
Simulator
EarningsWatcher’s Simulator applies realistic IV crush by strike and expiration instead of using a flat guess. For any structure you build, you can see:
- P/L across a range of earnings moves with crush applied.
- Worst-case and typical outcomes at 0% move, implied move, and beyond.
- How adding short wings (turning a straddle into an inverse butterfly) changes max loss and payoff profile.
A simple defensive tweak: instead of holding a pure straddle through earnings, consider
an inverse butterfly – same center, cheaper cost, and softer to IV crush.
When it can make sense to hold through crush
- Your research says the stock has a history of huge earnings moves vs implied.
- You use defined-risk structures and limited size, so worst-case loss is planned and acceptable.
- You’ve checked the historical distribution in Moves Analyser and modeled your structure in the Simulator.
Common IV crush mistakes
- Buying rich short-dated options “for the move” without modeling crush at all.
- Leaving naked short positions on names with fat-tailed earnings distributions.
- Confusing low realized move + big crush with “unlucky” instead of “poorly calibrated”.
Next: learn how post-earnings drift (PEAD) works once the crush is over.