Options Theta decay & earnings IV crush calculator

Before an earnings announcement, options price in a large expected move through elevated Implied Volatility (IV). After the announcement much of that uncertainty is resolved and IV usually falls ('IV crush'); how far depends on the stock, the quarter and the expiry (the calculator's default uses an illustrative 85% → 45%). If the stock's move (Delta + Gamma gain) is smaller than the Vega loss from the IV drop plus Theta decay, the option opens lower despite moving in your direction.

There is no standard amount: it depends on the stock, how uncertain that report was, and the expiry. The nearest expiry after the report usually falls the most, because the event is a large share of its remaining variance; longer expiries move less. Compare the IV of the same expiry just before and just after a past report in your option chain, and enter those levels here instead of the illustrative 85% → 45% default.

No. IV usually falls once the event is out because one known source of uncertainty is gone, but it can stay high or rise when the result or guidance surprises, when the stock keeps moving sharply, or when the whole market is volatile. Run the calculator with a smaller IV drop (or none) to see how the trade looks if the crush does not come.

In this model, one calendar day of theta: the calculator divides annual theta by 365. For the default 7-day, 85% IV call at $140 with a $145 strike, that is about −$0.46 per share, or −$46 per contract, per day if nothing else changes—and a weekend counts as three calendar days. Theta grows as expiry nears and is largest for at-the-money options, and the IV drop after earnings is usually a much bigger overnight change than theta.

A quick floor-trader approximation is the at-the-money (ATM) straddle price (ATM call + ATM put for the nearest expiry after earnings). In theory, a one-standard-deviation move to expiry is about Stock price × IV × √(days to expiry ÷ 365). Your long call or put needs the stock to move past its post-crush break-even price to profit.

Instead of buying short-dated calls or puts at peak IV, traders use vertical debit spreads (the short leg's IV falls too, offsetting much of the long leg's Vega), buy longer-dated options (the event is a smaller share of their total variance, so their IV usually rises less before the report and falls less after it, although they carry more Vega in dollars), or sell defined-risk spreads that profit if IV falls.