What is IV crush?
IV crush is the rapid decline in implied volatility that occurs immediately after an earnings announcement. Before earnings, uncertainty drives IV higher as traders buy options for protection or speculation. Once the announcement removes that uncertainty, IV collapses — often by 20-50% overnight. This collapse is the "crush" that premium sellers aim to capture.
Why IV crush creates an edge
Options are priced using implied volatility. When you sell options before earnings at inflated IV, you collect a premium that includes the "earnings premium" — extra IV from the upcoming event. After the announcement, that earnings premium evaporates regardless of which direction the stock moves. If the actual move stays within the implied range, you keep the excess premium as profit.
The ORATS earnings effect
The ORATS earnEffect metric measures how much of current IV is attributable to the upcoming earnings event, expressed in units of average daily moves. Formula: (IV with earnings − IV ex-earnings) / avg daily move. An earnEffect of 0.30 means the earnings event adds 0.3 average-daily-moves worth of implied volatility — this portion tends to evaporate after the announcement. Higher values = larger expected earnings-driven IV crush. Premium sellers can use this to estimate how much IV will collapse post-earnings.
Implied vs actual earnings moves
The options market prices an "expected move" around earnings — roughly the straddle price divided by the stock price. Historically, actual earnings moves stay within the implied range about 60-70% of the time for large-cap stocks. This means premium sellers win more often than they lose, but the losses can be larger when the stock moves beyond expectations. Tracking this ratio per ticker helps identify consistently overpriced vs fairly priced earnings.
When to sell earnings premium
The ideal window is 8-14 days before earnings, when IV is inflating but has not yet peaked. Enter defined-risk strategies (iron condors or iron butterflies) with expiration shortly after the announcement date. Set strikes at 1.2-1.5x the expected move to give yourself extra room for larger-than-average gaps. Note: VolRadar blocks new positions within 7 days of earnings as a safety rule — plan entries before that threshold.
When to avoid it
Avoid earnings premium selling when: the stock has a history of large earnings gaps (actual moves frequently exceed implied), the ticker has low liquidity (wide bid-ask spreads eat your edge), or when sector/macro conditions are unstable (backwardation, rising VIX). Also avoid after a string of quiet earnings — the market may be underpricing the next one.
Earnings IV Crush on VolRadar
Every ticker's Earnings Crush page shows: historical IV before and after earnings, implied vs actual move comparison, seller win rate, and the ORATS earnEffect. Free users see the verdict and 4 quarters of history. Starter unlocks the Edge Score, full 12+ quarter history, peer comparison, and strike recommendations.