IV crush, and why it is only half the trade
IV crush is the collapse in implied volatility that follows a scheduled event. Nike July 3 options carried 52 percent implied into the June 26 print and 27 percent the next morning. The collapse is close to certain. Who profits from it is decided by where the stock opens, not by the crush.
The most reliably predictable thing in options and the most reliably misunderstood.
Why it is predictable
An option's extrinsic value pays for uncertainty. On June 26 there is a genuinely unknown number about to be published and the market charges for it. On June 27 the number is public. The uncertainty is not reduced, it is gone, and the price of the thing that was pricing it goes with it.
This is not a market inefficiency and it is not something to be clever about. It is the contract doing exactly what it says. Anyone buying an option into a print is buying an asset with a known depreciation event attached.
The setup
June 26, close. Nike at $74.60. The July 3 expiry is 7 days out and its at-the-money implied volatility has ramped to 52 percent, up from 41 three weeks earlier.
The $74.50 straddle, both legs, costs $4.28. That is 5.7 percent of the stock, and it is the market's price on the move. Breakevens at expiry: $70.22 and $78.78.
The $70 put, 0.18 delta, pays $53.
The morning after, four ways
Implied volatility on that expiry drops to 27 percent in every one of these. What differs is the stock.
| Open | Move | $70 put now | Put seller kept | Straddle now | Buyer P/L |
|---|---|---|---|---|---|
| $74.90 | up 0.4% | $2 | $50 of $53 | $209 | -$219 |
| $73.10 | down 2.0% | $12 | $41 of $53 | $232 | -$197 |
| $71.80 | down 3.75% | $32 | $21 of $53 | $303 | -$125 |
| $69.20 | down 7.2% | $138 | lost $86 | $528 | +$100 |
Read the fourth row twice. The crush happened. Implied volatility fell by 25 points exactly as advertised. The put seller lost $86 on a contract they sold for $53, and the option buyer who was supposedly destroyed by the crush made money.
The two lessons in that table
The crush is real and it is worth a lot when the stock cooperates. Row one: the stock barely moved, the put went from $53 to $2, and the seller kept 96 percent of the premium in a single session. There is no other setup in options where you collect that fast.
Direction still decides. Rows three and four are two percentage points apart in stock price and $107 apart in outcome. The volatility collapse was identical in both. Selling premium into an event is not a bet on volatility falling, it is a bet on the stock staying inside a range, and the range is the one the market already told you it expected.
The buyer's arithmetic
The straddle cost 5.7 percent of the stock. Nike had to move more than that just to break even, and the move arrived at 3.75 percent, which is a substantial earnings reaction by most standards. The buyer lost $125.
That is the whole reason buying straddles into prints is a losing habit rather than a strategy. You do not need the stock to move. You need it to move more than the number already printed on the screen, and the market spent three weeks arriving at that number with more information than you have.
What the seller is actually being paid for
Not for the crush. The crush is priced in, is expected by everyone, and is available to anyone.
The premium is compensation for the gap. Nike opened down 3.75 percent in the example. It could have opened down 12 percent, and the short $70 put would have been $8 in the money against a $53 credit, with no opportunity to hedge because the move happened while the market was shut. There is no stop-loss that works overnight.
That is the trade. You are paid $53 to accept a risk you cannot manage during the four hours it materializes.
How to actually handle a print
- Avoid it. Sell the last expiry before the date. Nike June 20 at 26 percent instead of July 3 at 52. Half the premium, none of the gap. For most sellers on most names this is the correct default and it is not exciting.
- Take it deliberately, at a strike you would own. If you would happily buy Nike at $70 and the print gets you there, the assignment is the plan working. The ticker screen matters more than the volatility read here.
- Size it to the tail, not the delta. Ask what a 12 percent gap does to the position, because the 3.75 percent move is not the one that matters.
- Close the day after, not at expiry. Row one collected 96 percent of the premium overnight. Holding six more days for the last $2 while carrying full assignment risk is a bad exchange.
OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.
Questions people actually ask
What is IV crush?
The collapse in implied volatility right after a scheduled event resolves. Nike July 3 options carried 52 percent implied into the June 26 print and 27 percent the next morning, because the uncertainty the premium was pricing no longer existed.
Can I profit from IV crush by selling options before earnings?
Only if the stock stays inside the range already priced. In the worked example the crush was identical across every outcome, and a 3.75 percent drop still cost the put seller most of the credit while a 7.2 percent drop cost far more than it.
How much does implied volatility drop after earnings?
On the front expiry, typically most of the way back to the stock ordinary level in a single session. Nike went from 52 percent to 27. Further-dated expiries barely move, because the event was a small part of what they were pricing.
Should I hold a short option through earnings?
The lower-variance default is to sell the last expiry before the print and take the smaller credit. Holding through is defensible only when you have already decided that assignment at that strike on that morning is acceptable.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Volatility for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.