Monk Mode · Learn

IV Crush: right, and still wrong

“I was right but still lost.” It is the most common earnings-trade story, and it is not bad luck — it is mechanics. Step through a trade and watch implied volatility do the damage.

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The setup: you buy an at-the-money call ($100.00 strike) the day before earnings, when implied volatility is high. Earnings hit, the stock moves your way — then IV collapses.

Days to expiry (before earnings)7d

Stock move on earnings+5%

IV before earnings80%

IV after earnings40%

Premium paid

$4.46

Value after earnings

$5.55

Your P&L

+$1.08

How the pieces add up

The stock moved up 5% — to $105.00. Without an IV change, your call would be worth $7.21. But IV fell from 80% to 40%, and that collapse alone stripped out $1.66. Direction and time decay together moved you +$2.75; the IV crush is the part that turned a correct call into a loss.

Educational only. This shows the math and the honest odds — it is not a recommendation to make any trade, and it is not investment advice. All numbers are illustrative unless stated otherwise.