Multi-leg strategies
What happens to a Long Straddle position immediately after an earnings announcement is made?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Immediately after an earnings announcement, a Long Straddle typically experiences a sharp drop in implied volatility (volatility crush), which can offset gains even if the stock moves significantly.
How it works
The combined effect of IV crush and time decay means the stock often needs to move more than the market-implied expected move to produce a net profit post-earnings.
An example
A straddle purchased before earnings for $8 may only be worth $7 after a 5% stock move if implied volatility collapsed from 60% to 30% overnight.
Risk & limitations
Buying straddles purely for earnings is risky because volatility crush is a well-documented, near-certain effect, while directional outcomes remain unpredictable.
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.