Guide · Reviewed 6 September 2026
IV drops 40–60% after earnings. Straddle buyers lose 30%+ even if stock moved (volatility collapse). Sellers profit from crush.
Volatility crush: IV collapses after events (earnings, Fed decision, product launch). Options buyers (straddle, strangle) get wrecked—stock moved but premium decayed faster. Options sellers and calendar spreads profit. Timing IV crush is advanced trading.
Why IV crushes after earnings
- Uncertainty resolved: Before earnings: "Could be great or disaster." IV = 40%.
- After earnings: "OK, we know the actual result." IV = 20%. Risk known, not unknown.
- Math: Straddle: Paid $400 (2x $200 calls/puts with IV 40%). Stock moved $10 (worth $400). But IV crush from 40% to 20% = straddle worth $240 (loss $160, −40%).
Earnings straddle disaster (real example)
Stock $100. Earnings tomorrow.
- Buy $100 straddle: $2 call + $2 put = $4 cost.
- Stock moves to $110 (+10%). Great!
- Call now worth $10. Put worthless ($0).
- But IV crushed 40% → 20%.
- Actual call price: $8 (not $10, because IV lower).
- P&L: $8 − $4 cost = $4 profit. Sounds good, but...
- Without crush: Call would be worth $11 (stock moved $10 + still has 1 week).
- Opportunity cost: Lost $3 due to IV crush.
Calendar spread: profit from crush
Sell front-month (30 days) straddle, Buy back-month (60 days) straddle.
- Sell $100 30-day straddle (IV 40%): Collect $4.
- Buy $100 60-day straddle (IV 38%): Pay $5.50.
- Net debit: $1.50.
- Earnings in 2 days: Stock drops to $95.
- Front-month straddle now worth $3 (IV crushed 20%, but deep ITM).
- Back-month straddle still worth $4 (longer dated, some theta decay but IV only down to 30%).
- P&L: Sell ($3) − Buy ($4) + Debit ($1.50) = −$2.50. Loss.
Issue: Calendar spreads work if stock stays near strike. If big move, short-month assignment wipes profit. Theta decay > volatility crush.
When calendar spreads work
- Stock expected to stay flat: Earnings pass without huge move. IV crushes. Theta collects.
- Volatility mean-reversion: IV spiked to 50%, expected to drop to 30%. Calendar captures the drop.
- Earnings already priced in: IV high, but stock won't move much. Sell near-term IV (collect crush), keep long-term (safe).
Volatility crush timing
Peak IV: Just before event (unknown). Sell then.
Trough IV: Just after event (known). Crush already happened, too late.
Strategy: Sell straddles 1–2 days before earnings when IV peaks. Close 1–2 days after when IV troughs (lock in crush profit). Don't hold through earnings.
Takeaway: Volatility crush is powerful (40%+ IV drops). Straddle buyers get destroyed by crush (worse than actual loss). Smart sellers and calendar spreads profit. Time the exit carefully (exit when crush reaches expected level, not max pain).