Implied volatility (IV) is the market's guess of how much a stock will move, built into the option's price. Higher IV means more expensive options.
IV crush
Before earnings, IV usually climbs: everyone expects a big move, so options cost more. Right after the report, the uncertainty is gone and IV drops sharply. That drop is called IV crush.
The result surprises a lot of new traders: the stock moves the way they guessed, and their option still loses value, because the crush wiped out more than the move added.
How NextShelf handles it
Every options estimate says which IV it assumes (today's), and the Options tab warns you when earnings fall before the contract expires. If volatility falls, the real result will be worse than the estimate.
- IV is the expected move priced into an option.
- IV often drops right after earnings (IV crush).
- NextShelf's estimates assume today's IV; falling IV means less.
You buy a call before earnings. The stock rises 2%, but your call loses value. The most likely reason?
Educational content only, not financial advice. See today's setups in NextShelf →