📊 Earnings és IV-Crush

Before quarterly earnings are released, uncertainty is at its peak: nobody knows the result, but everyone knows when it will come. This uncertainty drives the implied volatility (IV) of options higher — the market prices in a large expected move. Options become expensive.

Four times a year a company reports its numbers — and on exactly those days, an entire quarter's worth of uncertainty is concentrated into a single price reaction. Unlike ongoing news flow, the date is known in advance: the market has time to position itself and drives implied volatility systematically higher in the days beforehand. This predictability makes Earnings the most thoroughly studied volatility anomaly of all — and a trap for everyone who only sees the premium and not the risk behind it.

Before trading Earnings, you need to know how much movement the options market has already priced in — the so-called Expected Move. It is the market-expected price range until expiry and is embedded directly in the implied volatility.

Rule of thumb: The price of the at-the-money Straddle (call + put at the current price) approximately equals the Expected Move in dollars. Alternatively via IV: Expected move ≈ price × IV × √(days to expiry / 365).

If you buy an option, you only win if the price moves beyond this corridor. If you sell, you win as long as the price stays within it — the entire Earnings speculation revolves around this single line.

Note: The calculation example yields an Expected Move of ± 19 % with 80 % IV; the chart corridor is set to a rounded ± 10 % for clarity.

As soon as the numbers are published, uncertainty vanishes instantly. Implied volatility collapses — the notorious "IV-Crush". Options lose massive value overnight, even if the price barely moves.

If you are Long-Vol (Straddle buyer), you need a move beyond the Expected Move to compensate for the IV-Crush. If you are Short-Vol, you benefit directly from the collapse.

The IV term structure explains why the Calendar Spread works: the short-dated option (front month) absorbs all the Earnings uncertainty and loses the most IV after the numbers, while the longer-dated option remains more stable. Selling the short leg and holding the long one profits precisely from this difference in IV sensitivity.

The theory is elegant, but the IV-Crush has a dark side: if the price moves further than the priced-in Expected Move, what seemed like a "safe" premium can quickly turn into a multiple of losses. Two real META cases show both directions — and hit the opposing side hard each time.

📉 META, February 3, 2022 — the crash

Straddle buyers: winners — the move exceeded the Expected Move by almost three times; the gain on the put side more than compensated for the IV-Crush. Strangle/Iron Condor sellers: disaster — the price cut through the short puts far, and the loss was a multiple of the premium collected. Stop-loss orders were worthless because the gap formed overnight and trading resumed only 26 % lower.

Sources: StatMuse (prices), OptionSlam (Straddle / Implied Move), CNBC (price reaction).

📈 META, February 2, 2024 — the leap upward

Straddle buyers: winners again — this time the call side exploded. Strangle/Condor sellers: loss on the call side; a covered call would have had the stock called away at the strike, missing the entire +20 % rally. The lesson: Gap risk is bilateral — even good news can ruin the volatility seller.

Sources: StatMuse (prices), Nasdaq (Implied Move), Bloomberg (price reaction).

Long-Vol before Earnings: Buy a Straddle/Strangle and bet on a surprise. Wins only if the actual move exceeds the priced-in one.

Short-Vol over Earnings: Sell a Strangle/Iron Condor, collect the inflated premium, profit from the IV-Crush. Danger: a gap beyond the short strikes.

Calendar Spread: Exploits the fact that the short-dated option loses IV more sharply than the longer-dated one.

Earnings volatility is one of the most thoroughly researched areas in options trading. The numbers explain why systematic volatility sellers have a long-term Edge — and why a single outlier can still wipe it out.

Sources: tastytrade Market Measures (529 stocks, 17,966 Earnings events: 65 % of Straddle purchases lose), ORATS Backtest (5,217 Earnings, 20,868 trades) and industry analyses on IV-Crush magnitude (average around 38 %). Magnitudes vary by underlying, IV regime, and sample. Individual Earnings are not predictable — the statistics apply only across many trades.