IV crush: why a rising stock can still leave a call worth less

IV crush describes a sharp reduction in implied volatility: the volatility input consistent with an option’s price under a chosen model. This often becomes a concern around a scheduled event such as earnings. Event uncertainty can be reflected in the pre-event option price; that uncertainty can change once the news is known.

A call’s value depends on more than whether the stock went up. Time remaining, implied volatility, strike and other pricing inputs matter. A favorable underlying move may be outweighed by changes in the other inputs.

Assume one long call with strike $105, multiplier 100, bought for $3 per share while the stock was at $100. Its cost is $300 before fees.

After the event, suppose the stock is $103 and the option can be marked at $1 per share. The marked change is (1 − 3) × 100 = −$200, despite the stock’s rise. If instead a sufficiently large move leaves a $6 quote, the marked change is +$300. Neither outcome follows from the stock’s direction alone.

These are authored quote scenarios, not model-generated prices or actual fills. They illustrate accounting, not an isolated causal estimate of IV. An actual exit depends on executable quotes, spreads and fees.

Vega describes local sensitivity to implied volatility. Check the convention: a move from 60% IV to 40% is −20 percentage points, not −20% relative. A local vega approximation should not be stretched across a large volatility change and presented as an exact revaluation.

To isolate IV’s contribution, reprice the same contract while holding the other inputs fixed in a suitable model. Our example deliberately reports only the change between supplied quotes; it does not attribute the entire loss to IV.

Record the contract, premium, time remaining and event timing. Distinguish a mark from an executed fill. Compare multiple underlying-price outcomes rather than assuming a correct directional view guarantees a gain.

For spreads, inspect both legs and the combined exposure; the behavior of one long call does not automatically describe the position. Short options also retain substantial movement and assignment risks. IV falling does not guarantee that selling options earns a profit. Use these distinctions to evaluate your reasoning before risking capital.