Long calls & puts
What is the IV Crush and why does buying calls right before earnings often result in instant losses?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
IV crush is the sharp decline in implied volatility that typically follows a known event like earnings, causing option premiums to collapse even when the stock price barely moves after the announcement.
How it works
Because earnings dates carry elevated pre-event IV pricing in the anticipated uncertainty, buying options right before the release often means paying inflated premiums that deflate once the uncertainty resolves.
An example
A trader buying an XYZ call the day before earnings with IV at 80% can see the option lose significant value the next morning even on a modest favorable stock move, as IV drops to 40%.
Risk & limitations
Avoiding or understanding IV crush requires checking historical IV patterns around earnings and considering defined-risk spread strategies rather than outright long options into known volatility events.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.