Earnings Expected Move and IV Crush: Straddle Pricing Explained

The earnings expected move is the size of move the options market prices in around an earnings announcement, read from the at-the-money straddle for the first expiry after the announcement. IV crush is the drop in implied volatility once the announcement is out and that uncertainty is resolved. Vyreon reports the next earnings date and its timing, the straddle-priced move, and the change in 30-day implied volatility around the most recent announcement.

When Is The Next Earnings Date?

Vyreon shows the next expected announcement date as reported by its data provider, together with the provider's expected time of the company's earnings release (its 8-K filing) where one is available. The timing decides which trading session first reacts:

Before the open: Vyreon compares the previous close with that day's close.
After the close: Vyreon compares that day's close with the next session's close.
During the session: markets can react at once, but no close falls between the release and the reaction, so Vyreon compares the close before the release with the close of the following session. The window covers two sessions.
No release time reported: Vyreon assumes an after-close release and states that assumption.

Where the expected release time and the expected date disagree, Vyreon follows the release time. Dates and times are provider-reported and can change.

What Is The Earnings Expected Move?

An at-the-money straddle is one call and one put at the strike nearest the share price. Its cost is roughly what the market expects the stock to move, in either direction, by expiry. Vyreon prices it for the first listed expiry on or after the first reacting session:

Expected move = (call midpoint + put midpoint) ÷ share price

Illustrative example: a stock at $200 has an at-the-money call at $5.20 and put at $4.80 for the expiry two days after earnings. The straddle costs $10, an expected move of 5% to that expiry.

This figure includes ordinary movement on every day until expiry, not only the earnings reaction. It is a price, not a probability bound: the stock can move more or less.

What Is IV Crush?

Before earnings, options carry extra implied volatility for the uncertainty of the announcement. Studies of option prices around earnings have found implied volatility rising into the announcement and falling once results are out (see Sources). That fall is IV crush.

Vyreon measures it for the most recent completed announcement: 30-day at-the-money implied volatility on the last session before the announcement and on the first session after it, the change in volatility points, and the relative change.

Illustrative example: 30-day implied volatility of 45% before the announcement and 32% after is a change of −13 points, a relative drop of about 29%.

How Vyreon Measures It

Coverage: the individual companies Vyreon follows; ETFs do not report earnings.
Timing: the release time is placed on the New York Stock Exchange session calendar to find the first reacting session; Vyreon shows calendar days until the expected date and trading sessions until the first reacting session.
Straddle: closing call and put midpoints, interpolated linearly in strike to the closing share price, or the nearest strike within 2% of it.
IV crush: Vyreon's 30-day at-the-money implied volatility, from closing quotes, on the two sessions either side of the announcement.

What It Does Not Tell You

Which way the stock will move, or how far. The expected move is what options cost, not a forecast.
The earnings reaction alone. The straddle also prices normal day-to-day movement until expiry.
How big the next IV crush will be. Each figure is one event, and past drops do not determine future ones.
Whether buying or selling options around earnings makes sense for you.

Sources

James M. Patell and Mark A. Wolfson, "Anticipated Information Releases Reflected in Call Option Prices", Journal of Accounting and Economics (1979): implied volatility rising ahead of earnings announcements and falling after them.
Menachem Brenner and Marti G. Subrahmanyam, "A Simple Formula to Compute the Implied Standard Deviation", Financial Analysts Journal (1988): the at-the-money approximation, call ≈ 0.4 × S × σ × √t, so a straddle ≈ 0.8 × S × σ × √t.
John C. Hull, Options, Futures, and Other Derivatives (Pearson, many editions): implied volatility and straddles.