Four times a year, every stock has a date on which its price may move more than it does in the other sixty trading days combined. The options market knows the date, prices it in advance, and then reprices violently the moment it passes.

Understanding that sequence is what separates deliberately selling into earnings from accidentally holding through them.

What actually happens

Before. Uncertainty with a known date. Implied volatility on expirations covering the print inflates — often doubling — because nobody knows the outcome and everyone wants either protection or exposure.

The print. The news lands, usually outside market hours. The stock gaps to a new price without trading at the levels in between.

After. The uncertainty is resolved, so the premium for it disappears. Implied volatility collapses back toward its normal level within minutes of the open. That is IV crush.

Two forces, pulling opposite ways

For a premium seller holding through the print, the outcome is a race between two effects. The breakdown in the widget separates them.

The crush always helps you. Volatility falling is money in the pocket of anyone short vega, and after a scheduled event it falls reliably. This is the seller's edge and it is genuinely there.

The gap can go either way. And it is not bounded by anything the model knows about.

The crush contributes the same $310 in every row. The move is what decides the outcome, and the boundary sits close to the implied move — which is exactly what the inflated premium was charging for in the first place.

Why buying options into earnings usually disappoints

The most intuitive earnings trade — buy a call because you think the number will be good — fails for a reason that has nothing to do with being wrong about the number.

You pay inflated premium, the stock moves in your favour, and then the crush deflates your option faster than the move inflates it. A correct directional call that produces a loss is the standard outcome, not an unlucky one, and it happens whenever the move is smaller than what was already priced.

Where the model genuinely stops working

Everything else in this course rests on Black-Scholes, which assumes prices move smoothly and continuously. An earnings gap is precisely the case where that assumption fails.

The consequences are worth naming:

• Delta is not a hedge ratio across a gap. It describes small moves. A 15% overnight gap is not a small move.
• Probability of profit understates the risk. The lognormal distribution has thinner tails than an earnings print produces.
• Stop losses do not protect you. The stock does not trade through your level; it opens below it.

This is the clearest example in the curriculum of the greeks describing local behaviour only.

Three defensible approaches

Avoid it. Check the earnings calendar and choose expirations that do not cover a print. Simplest, and it costs you only the elevated premium you were not being adequately paid for anyway.

Sell it deliberately, sized small. The crush edge is real. Sell outside the implied move, on a stock you would genuinely own, at a size where the worst historical gap for that name would be survivable. Deliberate is the operative word.

Define the risk. A credit spread caps the gap loss at the width. You collect less; you cannot be surprised.

What can go wrong

Selling into earnings without knowing you are. The most common version: rich premium that seemed like a bargain, on a date nobody checked.

Assuming the crush always wins. It contributes a fixed amount; the gap has no such limit.

Normal position sizing on an event trade. The tail is far fatter than the model shows.

Rolling into a print. Extending thirty days can place an earnings date inside an expiration that previously avoided one.