Implied Volatility & IV Crush Around Earnings
Why options get expensive before earnings, why they can lose value the morning after even when you're right on direction, and how to think about the volatility risk premium.
Implied volatility (IV) is the market's expectation of how much a stock will move, backed out of option prices. It is not a forecast of direction — only of size of movement. When traders expect a big move, they bid options up, and IV rises; when they expect calm, options get cheaper and IV falls. Because higher IV means richer option premiums (recall vega from the Greeks lesson), IV is the single biggest reason two options on the same stock, same strike, same expiration distance can cost wildly different amounts at different times.
Why options swell before earnings
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