Read what options and the stock did around a report that has just come out, and compare the options-priced move for an upcoming report with the stock's own average earnings-day move, stating the horizon and what was compared
Reads what options and the stock did around a report that has just come out, and compares the move the options market prices for an upcoming report with the stock's own average earnings-day move over its past reports. A stock whose latest filed report came out within the last 10 trading sessions reads just reported: front-expiry at-the-money implied volatility on the last session before the release beside the first session after it, worked out from whether the report came before the open or after the close, naming the expiry each reading sits on or saying the front expiry rolled between them; the stock's signed move from the last close before the release to the first close after it; its absolute move on the wider window its earnings history is measured over, the last close before the report date to the first close after it, against the average of its earlier reports; and, where it was stored, what options priced on the last close before the release. A reading not in the data yet is stated with the date it is due, and a report whose time of day is not on record gets no before-and-after reading of implied volatility. Its next report is stated as a secondary fact. For an upcoming report, where the expiries just before and just after the report separate the report's own move cleanly (the report at most 25 trading sessions away, and neighbouring expiries agreeing within 25%), that isolated move is compared; otherwise a straddle covering at most 10 trading sessions is compared as it is; otherwise the name is stated as not comparable yet, with its reason. A straddle tied to no report date is not compared at all. A compared name is labelled rich (priced 25% or more above its average), cheap (20% or more below) or fairly priced in between, and every reading states the expiries, the trading sessions covered and the report date, flagged when the date is a projection rather than a confirmed filing. The labels describe how the options market prices the event against the stock's own history; they are not a judgement that any price is wrong.
Event volatility - where the term structure of implied volatility becomes concrete, and where the variance risk premium is most often mistaken for mispricing.
THE IMPLIED MOVE. The at-the-money straddle pays off on movement in either direction, so its price divided by spot is the implied move: how far the market is priced for the stock to travel by expiry. Under a short-dated at-the-forward Black-Scholes approximation, straddle / spot is about 0.8 x sigma x sqrt(T). So the straddle approximates the risk-neutral expected ABSOLUTE move, about 0.8 of a one-standard-deviation move, and recovering one standard deviation means DIVIDING by 0.8.
IV CRUSH, the mechanism the analysis is named for. Implied volatility for expiries spanning an earnings date is elevated, because the option must cover a scheduled event of unknown outcome. Once the result is released the uncertainty resolves regardless of the direction, and implied volatility falls sharply. A long option position can therefore LOSE money on a correct directional call, if the collapse in implied volatility outweighs the move in spot.
READING IT AFTER A REPORT. For a report filed within the last 10 trading sessions, the analysis sets front-expiry at-the-money implied volatility on the last session before the release beside the first session after it, timed from when the SEC accepted the earnings 8-K: after the close, the report date's session is the last before it; before the open, it is the first after it. With no time of day on record, no before-and-after reading is made. When the expiry holding the report finishes on the session after it, the front rolls to a longer one, and a one-day event volatility is set against a week of ordinary days: on 60 reports in October 2026, the 8 that rolled fell a median 58% front to front and 21% on one expiry. So a roll is stated, and falls are never ranked across stocks. The stock's reaction is its signed move from the last close before the release to the first after it; only the wider window its history uses, the last close before the report date to the first close after it, is set against the average of its earlier reports. What options priced on the last close before the release is stated where it was stored.
THE TERM-STRUCTURE PICTURE. Expiries before the event carry ordinary volatility; the first expiry after it carries the event premium, a visible kink. Its SIZE is not the event's implied move: implied volatility is annualised over maturities holding unequal amounts of non-event time, so isolating the event means differencing TOTAL IMPLIED VARIANCE across bracketing expiries.
THE TRAP THIS ANALYSIS SITS ON TOP OF. An implied move is two-sided, so it must be compared against historical ABSOLUTE moves over a matching event window, never against signed average returns, which average toward zero. And many equity-option samples find option-implied VARIANCE above expected or subsequently realised variance on average - the variance risk premium, documented by Bakshi and Kapadia (2003) and by Carr and Wu (2009), and read as compensation earned by sellers for bearing volatility risk. So implied sitting above the historical average realised move is the EXPECTED STATE, not evidence of mispricing. The question is whether the gap is larger than usual for this name, which requires a baseline the comparison does not establish.
A SECOND CAUTION. The historical average is computed over a handful of past earnings dates, often four or eight, and earnings reactions are highly dispersed, so it is a very noisy benchmark. With so few events the honest presentation is the individual absolute moves, with median and mean alongside.
WHY THE UNCONFIRMED-DATE FLAG MATTERS. If the earnings date is wrong, the expiry selected does not span the event and the whole calculation describes something else. Flagging an unconfirmed date is the analysis telling you its central assumption is uncertain.
The rich/fair/cheap bands are our own convention.
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