Earnings are the classic options event: big expected moves, elevated implied volatility, and a notorious trap called IV crush. Trading them well means understanding that you are betting not just on direction, but on how the move compares to what the market already priced in.
Open the Long Straddle calculator →In the days before a report, implied volatility ramps up because the outcome is uncertain, making every option expensive. Right after the release the uncertainty resolves and IV collapses — the IV crush.
This is why a long straddle bought before earnings can lose money even when the stock gaps: the inflated volatility you paid for evaporates the next morning, offsetting the move.
If you buy a straddle or strangle into earnings, the stock must move more than the premium plus the IV crush for you to profit — a higher bar than it first appears.
If you sell premium (iron condors, credit spreads), you are betting the move stays within the range the market priced, and you profit from the IV crush — with defined risk if you use spreads.
Compare the option-implied expected move to the stock’s typical earnings reaction. If options imply a 9% move but the stock usually moves 4%, selling premium may have an edge; if the reverse, buying may.
Always size earnings trades small — gaps are unpredictable, and defined-risk structures keep a surprise from becoming a disaster.
Most likely IV crush — the move was smaller than the implied move, so the collapse in implied volatility outweighed the stock’s rise.
Defined-risk strategies like iron condors or credit spreads, sized small, so an unexpected gap cannot cause an outsized loss.
Yes — by selling premium rather than buying it, or by avoiding holding long single options through the announcement.
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