IV crush, explained
Why options lose value after earnings, with the actual math
Published July 14, 2026 · Updated July 17, 2026
IV crush is the sharp drop in an option's price that happens when implied volatility deflates after a big event, usually earnings. It's the reason you can call the direction right and still wake up to a losing trade.
The worked example below shows just how violent it gets: a call bought the day before earnings loses a quarter of its value overnight even though the stock went up 4%. Every number is computed with the Black-Scholes model. You can also preview the crush on your own position before you buy:
Open the free calculator → Enter your position, set the IV change control to the drop you expect, and see the morning after before you pay for it.What implied volatility is, and why it swells before earnings
Implied volatility (IV) is the market's estimate of how much a stock will move, expressed as a yearly percentage and baked into every option's price. It says nothing about direction. It's purely a price on movement, and the more movement traders expect, the more an option costs.
Before a binary event like earnings, everyone knows a big move is coming, they just don't know which way. That uncertainty is worth money, so option prices inflate to match. A stock that normally trades at 35% IV can print 80% or higher the day before it reports.
Here's the catch: the uncertainty resolves overnight. Once the report is out, there's nothing left to be uncertain about, and IV snaps back toward its normal level within minutes of the open. The part of the option's price that was paying for uncertainty disappears with it. That's the crush. It isn't a glitch or market makers cheating you. The thing you were paying a premium for simply stopped existing.
The mechanics, with real numbers
Say a stock trades at $100 the day before earnings, and you buy the $105 call with 14 days to expiry. Pre-earnings IV is pumped to 80%, so the call costs $4.27. Overnight, the company reports, and by the open IV has settled back to 45%. Here's the same option the next morning under three stock scenarios:
| Morning after (IV 45%) | Option value | vs your $4.27 entry |
|---|---|---|
| Stock flat at $100 | $1.57 | −63.1% |
| Up 4% to $104 | $3.14 | −26.6% |
| Down 4% to $96 | $0.66 | −84.5% |
Values computed with the Black-Scholes model at a 4.5% risk-free rate. It's the same math the calculator runs.
The table is worth a slow read, because every row stings:
- The stock went up 4% and the call still lost 26.6%. The move was real, the direction was right, and the trade lost anyway. For comparison, if IV had somehow stayed at 80%, that same 4% move would have put the call at $5.88, a 37.6% gain. The IV drop cost more than the stock move earned.
- Flat is a disaster. No move at all and the option loses nearly two thirds of its value overnight. This is the quiet outcome nobody prices in emotionally, and it's the most common one.
- The real bar is higher than you think. After the crush, this call needs the stock to open around $106.15, a jump of about 6.2%, just to break even. When you buy a call before earnings at 80% IV, that's the actual bet you're making, not "the stock goes up."
Preview the crush on your own position
The calculator has an IV change control built for exactly this. Enter your position (stock price, strike, days to expiry, and the current IV from your broker's option chain), then set IV change to the drop you expect, for example −35 if IV is at 80% and normally sits near 45%. The whole projection table reprices instantly, so you can read the morning-after value at any stock price before you place the trade.
How do you guess the size of the drop? Look at where the stock's IV sat a few weeks ago, before the run-up, or check what happened after its last few earnings reports. Most broker platforms chart IV history. The gap between "now" and "normal" is roughly what's at risk.
Try it with your position → The OptionWit calculator is free, runs entirely in your browser, and stores nothing.Frequently asked questions
How much does IV drop after earnings?
There's no fixed number, but the pattern is consistent: IV builds for days or weeks before the report and gives most of that buildup back overnight. For a typical single stock, that can mean falling from 70–90% back to 35–50% by the next open. The cleanest estimate comes from the stock's own history: check where its IV settled after the last few earnings reports.
Can you profit from IV crush?
Traders who sell options ahead of earnings collect the inflated premium and benefit when it deflates. That's the basis of strategies like credit spreads and iron condors. But selling options carries its own risk, and a bigger-than-expected move can cost far more than the premium collected. Understand the trade-off fully before trying it, and remember this site doesn't give financial advice.
Does IV crush affect puts too?
Yes, equally. Vega, the sensitivity to IV, works the same for calls and puts. A put bought at inflated pre-earnings IV loses value to the crush in exactly the same way, and a correct bearish call on the stock can still lose money if the drop is smaller than the IV collapse.
Why did my call lose money when the stock went up after earnings?
Because the stock's move earned less than the IV collapse cost. Your call gains through delta when the stock rises, but it loses through vega when IV falls, and after earnings the vega loss is often bigger. In the example above, a 4% overnight gain in the stock still left the call down 26.6%. The stock needed to jump about 6.2% for the trade to break even.