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Why Options Can Lose Value After Earnings Even When You're Right
Before scheduled events, demand for options tends to push implied volatility up, making options more expensive. After the news is out, uncertainty falls and IV usually drops quickly — the so-called IV crush.
Why it matters
An option buyer can be right about direction and still lose money if the move is smaller than what the elevated price already implied. That's why unusual buying right before earnings is far from a guaranteed win, even when the stock moves the “right” way.
What to compare
- The option's IV versus its recent history.
- The expected move implied by at-the-money straddle prices versus past earnings reactions.
- How much time value you are paying for.
Understanding IV turns flashy flow into something you can reason about calmly.