Trading options around earnings: how to read the expected move, why IV crush hits buyers, and which strategies fit. META straddle example with real numbers.
Summary: Trading options around earnings means trading two things at once: the stock's move on the report and the collapse of implied volatility right after it. In the illustrative META example, a straddle bought just before the report, two days before its weekly expiration, costs $4,126 and needs a 5.9% move the next day just to break even, because the same straddle loses 77% of its value overnight if the stock doesn't move. Since the entry day that worked on past reports depends on how each quarter's priced move happened to expand, the article ends with a hindsight-free testing routine that runs one gap rule on ten synthetic charts.
Last updated: 2026-10-19.
How Earnings Affect Option Prices
An earnings report is a scheduled shock. Everyone knows the date, nobody knows the number, and the stock often moves more in one session than it does in a normal week. Option prices reflect that in advance: before the report, the options that expire after it carry extra implied volatility for the expected jump. After the report, that extra volatility disappears in a single morning.
That collapse has a name: IV crush is the sharp drop in implied volatility after a known event, when the uncertainty the options were priced for has been resolved. It's why buying options before earnings can lose money even when you guessed the direction right — and why selling them can lose money even when the market calms down afterward, if the move was bigger than the options priced.
The Concert Ticket Analogy
Fig. 2 — The event premium is paid before the report and is gone the morning after, whatever the move.
Tickets to a sold-out concert get more expensive every day before the show. Resellers know demand peaks just before the doors open. The morning after the concert, the same ticket is worth nothing — not because the music was bad, but because the event is over.
Options before earnings are concert tickets. Their price includes a premium for an event that happens on a known night. Whether you bought the ticket at a good price depends on the show — the size of the move — but the premium for "the show hasn't happened yet" is gone either way once it's over.
Key Facts
- Before a report, options expiring after it carry extra implied volatility for the expected one-day jump; after the report, that extra volatility collapses (IV crush).
- Meta scheduled its third-quarter 2026 report for after the close on Wednesday, October 21, 2026, according to the company.
- In the illustrative META example at $700, the at-the-money straddle in the weekly expiring two days later costs $41.26 per share — $4,126, or 5.9% of the price — at an implied volatility of about 100%.
- The expected move is roughly the at-the-money straddle price: about ±$41, putting the break-evens near $659 and $741.
- If META doesn't move, the straddle falls from $41.26 to about $9.35 the next day — a 77% loss from IV crush alone.
- The buyer needs about a 5.9% move the next day to break even; a 7% move gains about $780, and a 3% move loses about $1,980.
- Buying a straddle about ten days before the report and selling it on the last session before it only breaks even if the market raises the priced move from 7% to about 8.8%; a backtest that picks the entry day fits that quarter-by-quarter expansion.
The Expected Move: What the Market Is Pricing
The simplest way to read what the market expects from a report is the price of the at-the-money straddle in the first expiration after it:
Expected move ≈ at-the-money straddle price (in dollars)Expected move % ≈ straddle price ÷ stock price
Meta Platforms (META) closed at $709.33 on October 16, 2026, according to the META quote on StockAnalysis, and the company scheduled its third-quarter report for after the close on Wednesday, October 21 (Meta Investor Relations). The example below is an illustrative scenario with META at $700, two days to the weekly expiration that follows the report, a 4% interest rate and no dividend before expiration. It assumes the stock normally moves at 32% annualized volatility and that the market prices the report as a one-day move with a 7% standard deviation. These are assumptions chosen to show the mechanics, not quotes, and not a recommendation to trade META.
Under those assumptions the $700 call costs $20.71 and the $700 put costs $20.55, so the straddle costs $41.26 per share, or $4,126. That's an expected move of about ±$41, or 5.9% of the price, with break-evens at $658.74 and $741.26 at expiration. The implied volatility that produces those prices is about 100% — three times the stock's normal 32% — because most of the option's remaining life is one scheduled jump. Without the report, the same two-day straddle would cost about $13.23.
IV Crush in Numbers
The morning after the report, the event is priced out. In the example, implied volatility falls back to the normal 32% with one day left. The table shows the straddle's value that morning for different moves, and what that means for a buyer and a seller of the straddle at $41.26.
Fig. 3 — Illustrative META $700 straddle bought for $41.26: the buyer needs a move larger than about 5.9% to profit after IV crush.
| META move after the report | Straddle value next day | Buyer's result | Seller's result |
|---|
| 0% ($700) | $9.35 | −$3,191 | +$3,191 |
| +3% ($721) | $21.44 | −$1,982 | +$1,982 |
| +5% ($735) | $35.09 | −$617 | +$617 |
| +7% ($749) | $49.08 | +$782 | −$782 |
| −7% ($651) | $48.92 | +$766 | −$766 |
| +10% ($770) | $70.08 | +$2,882 | −$2,882 |
| −12% ($616) | $83.92 | +$4,266 | −$4,266 |
The first row is IV crush in its pure form: the stock does nothing, and the straddle loses 77% of its value overnight. The break-even move for the buyer the next day is about 5.9% in either direction — almost exactly the expected move. That's not a coincidence: with one day left, the straddle is worth almost exactly its intrinsic value, so the move needed to break even is the price you paid — the expected move. Your result depends on whether this report's move turns out bigger or smaller than that price.
The IV Run-Up Before the Report
Implied volatility doesn't jump on the day before earnings; it climbs into the report. The reason is arithmetic. The expected one-day jump is a fixed amount of variance, and as the expiration gets closer, that same jump is spread over fewer days — so the annualized implied volatility rises.
Fig. 4 — IV run-up and IV crush for an at-the-money option expiring about three weeks after the report (illustrative).
Take an at-the-money option in the example that expires about three weeks after the report. With 34 days left, about ten days before the report, it carries about 39.4% implied volatility. Five days later it shows 40.5%, and on the last session before the report, with 24 days left, 42.1% — even though nothing about the company changed. The morning after, it drops back toward the stock's normal level. Traders who see that climb on a chart often conclude that buying options a week or two early and selling them before the report is a reliable trade. The numbers say otherwise: in the example, buying the straddle about ten days before the report and selling it on the last session before it loses about $683 if the priced move stays at 7%, because ordinary time decay outweighs the climb.
Strategies Traders Use Around Earnings
- Long straddle or strangle. Pays when the move beats the expected move. In the example, a 10% move gains about $2,882; a 3% move loses about $1,982. See the strangle strategy for the cheaper, wider version.
- Defined-risk premium selling. An iron condor with its short strikes near the expected move collects part of the event premium while the long wings cap a surprise.
- Debit spreads for a directional view. With a long and a short option, IV crush hits both legs and largely cancels — at the cost of the big-move payoff.
- Calendar spreads. Selling the inflated front-week option against a later expiration targets the crush itself; see the calendar spread.
Every one of these is a statement about one number: will the move be bigger or smaller than the expected move? Buyers say bigger, sellers say smaller. Neither side has an advantage built in: whether event options are priced rich or cheap varies from report to report — see the volatility risk premium.
Common Mistakes When Trading Options Around Earnings
- Buying calls on a "sure" beat. The direction can be right and the trade still lose: a 2% rally still leaves a call buyer about $595 behind once the crush hits.
- Ignoring the expected move. A trade that needs a 4% move is a different trade when the market already prices 6%.
- Selling naked premium into the report. The −12% row shows what one large gap does to an uncovered seller.
- Treating the IV run-up as free. Time decay keeps working while implied volatility climbs.
- Not checking the date and time. A report before the open and a report after the close land on different trading days and different expirations.
⚠️ Warning: An earnings gap happens between two prices with nothing in between. A stop order can't protect a position through the report — the next trade may be far past it. Size every earnings trade for the gap, not for the stop.
What a Backtest Can't Tell You About Trading Options Around Earnings
Earnings backtests love one parameter: the entry day. "Buy the straddle ten days before the report, sell it the session before" sounds like a rule, and it can show a fine track record over a set of past quarters. But the result of that trade isn't set by the calendar. It's set by how much the market raised the priced move between your entry and the report — and that depends on the mood around each quarter, not on how many days you held.
Use the example's straddle. Bought about ten days before the report — with 34 days to expiration — with the priced move at 7%, it loses about $683 by the last session before the report if the priced move stays at 7%. If the market raises it to 8.5%, the loss shrinks to about $110. It takes a priced move of about 8.8% just to break even, and a jump to 10% to show a gain of about $514. If the priced move slips to 5.5% instead, the same trade loses about $1,188. A backtest that tested entry days from 3 to 15 and kept the best one picked the day that matched how the priced move expanded in the quarters it happened to contain.
A backtest answers "what would have happened"; hindsight-free testing is testing a trading rule on a market chart that did not exist when you wrote the rule, so the rule cannot be bent to fit the past. For an earnings trade, that means fixing the entry, the exit and the size before the event and then facing a jump you couldn't time — forward testing on synthetic markets tests the rule against the gap, not against the quarters you already know. The reasoning is laid out in hindsight-free testing.
How to Practice Earnings-Style Gaps Without Real Money
Pilots don't wait for a real storm to learn turbulence; the simulator gives them the shake without the risk. Earnings trades are the same: what you need to rehearse is holding a position through a jump you can't see coming, with your exit already decided.
One honest difference first: the simulator has no scheduled earnings reports and no IV crush. Its implied volatility follows the realized volatility of the last ~20 candles, so after a jump implied volatility rises rather than collapsing. What you can practice is the gap itself. The "Essential 2 [ Sudden Shock ]" model generates sudden jumps at random moments, and you can buy a call and a put at the same strike from the option chain — or use the "Long Straddle" template in the Strategies tab — to hold a straddle through them and see how often the move clears the price you paid.
Run It Forward: 10 Charts, One Rule
- Step 1: Write the rule down first. Buy one at-the-money straddle in the expiration closest to seven days; before the first candle, write down the straddle's cost and its two break-evens (strike minus and plus the cost); hold it to the last candle before expiration, then sell both legs.
- Step 2: Generate a chart. In "Model Settings", choose "Essential 2 [ Sudden Shock ]" with the "Random" scenario and a length of 3m.
- Step 3: Open the position. Buy the call and buy the put at the same strike with the "B" buttons, or execute the "Long Straddle" template with that expiration selected in the chain.
- Step 4: Step forward candle by candle. Don't sell early after a jump and don't add to the position; the exit is the one you wrote down.
- Step 5: Record four things. Whether a jump happened during the holding period, the largest one-candle move, whether the price finished outside a break-even, and the straddle's result in dollars.
- Step 6: Repeat on 10 charts. Count how many charts cleared a break-even and read the spread of results, not the average.
FAQ
What is IV crush after earnings?
IV crush is the sharp drop in implied volatility after an earnings report, when the uncertainty the options were priced for is resolved. In the article's example, a META straddle loses 77% of its value overnight if the stock doesn't move, because its implied volatility falls from about 100% to 32%.
How do you calculate the expected move for earnings?
Take the price of the at-the-money straddle in the first expiration after the report. In the example, the $700 straddle costs $41.26, so the expected move is about ±$41, or 5.9% of the stock price. It's a market price, not a forecast.
Should you buy options before earnings?
Only if you expect a move larger than the one already priced. A bought straddle in the example needs about a 5.9% move the next day to break even; smaller moves lose money even in the right direction, because the crush takes away most of the extra premium.
What is the best options strategy for earnings?
There isn't one. Long straddles and strangles pay when the move beats the expected move; defined-risk premium selling such as an iron condor pays when it falls short. Debit spreads reduce the effect of IV crush for a directional view. The right choice depends on your view of the move relative to its price, and on how much a gap can cost you.
Can you backtest options trades around earnings?
Yes, but an earnings backtest usually picks the entry day that worked best on past quarters, and that result depends on how much the market raised the priced move in those particular quarters. In the example, a straddle bought about ten days early breaks even only if the priced move expands from 7% to about 8.8%. Testing a fixed rule on synthetic charts with jumps you can't time shows how the rule handles the gap itself.
Related: Volatility Risk Premium, Implied Volatility Explained, Straddle Strategy, Strangle Strategy, Iron Condor Strategy, Backtesting vs Simulated Data.
About the author: Miroslav Slavkovský is the founder of OptionsSimulator and a software developer focused on derivatives-pricing models. He built the platform's simulation engine — implementing Heston, SABR, GARCH, and Monte Carlo methods — so traders can practise options strategies on generated market scenarios rather than on historical charts.
Practice Holding a Position Through a Gap
Want to see how a straddle behaves when a jump arrives without warning — without risking real money? Open the simulator, buy a straddle on an "Essential 2 [ Sudden Shock ]" chart, and run the rule forward on a synthetic market that has never existed.
Open Simulator
Step-by-step guide
- Write the rule down first. Buy one at-the-money straddle in the expiration closest to seven days; before the first candle, write down the straddle's cost and its two break-evens (strike minus and plus the cost); hold it to the last candle before expiration, then sell both legs.
- Generate a chart. In "Model Settings", choose "Essential 2 [ Sudden Shock ]" with the "Random" scenario and a length of 3m.
- Open the position. Buy the call and buy the put at the same strike with the "B" buttons, or execute the "Long Straddle" template with that expiration selected in the chain.
- Step forward candle by candle. Don't sell early after a jump and don't add to the position; the exit is the one you wrote down.
- Record four things. Whether a jump happened during the holding period, the largest one-candle move, whether the price finished outside a break-even, and the straddle's result in dollars.
- Repeat on 10 charts. Count how many charts cleared a break-even and read the spread of results, not the average.
Frequently asked questions
What is IV crush after earnings?
IV crush is the sharp drop in implied volatility after an earnings report, when the uncertainty the options were priced for is resolved. In the article's example, a META straddle loses 77% of its value overnight if the stock doesn't move, because its implied volatility falls from about 100% to 32%.
How do you calculate the expected move for earnings?
Take the price of the at-the-money straddle in the first expiration after the report. In the example, the $700 straddle costs $41.26, so the expected move is about ±$41, or 5.9% of the stock price. It's a market price, not a forecast.
Should you buy options before earnings?
Only if you expect a move larger than the one already priced. A bought straddle in the example needs about a 5.9% move the next day to break even; smaller moves lose money even in the right direction, because the crush takes away most of the extra premium.
What is the best options strategy for earnings?
There isn't one. Long straddles and strangles pay when the move beats the expected move; defined-risk premium selling such as an iron condor pays when it falls short. Debit spreads reduce the effect of IV crush for a directional view. The right choice depends on your view of the move relative to its price, and on how much a gap can cost you.
Can you backtest options trades around earnings?
Yes, but an earnings backtest usually picks the entry day that worked best on past quarters, and that result depends on how much the market raised the priced move in those particular quarters. In the example, a straddle bought about ten days early breaks even only if the priced move expands from 7% to about 8.8%. Testing a fixed rule on synthetic charts with jumps you can't time shows how the rule handles the gap itself.