Implied volatility (IV) is the forward-looking volatility embedded in an option’s market price. It estimates the potential magnitude of movement over the option’s life, not whether the stock should rise or fall. The expected move is a rough event-specific estimate derived from option prices—commonly the at-the-money (ATM) straddle premium—and is not a guaranteed trading range.
These measures are especially important around earnings. Uncertainty can lift IV and option premiums before a report, while IV often drops after the results are released. That “volatility crush” can make a long call or put lose money even when the stock moves in the anticipated direction.
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What is implied volatility?
Implied volatility is the volatility level that an option-pricing model infers from the option’s market price. The model also uses the underlying stock price, strike price, time to expiration, interest rates and dividends. IV is therefore not a separate quote that the market directly sets; it is the volatility input that makes the model’s theoretical value match the traded premium.
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IV is forward-looking. It reflects how much movement traders are pricing over the option’s remaining life, including uncertainty about scheduled events such as earnings. A higher IV generally produces a more expensive call or put when the other pricing inputs are unchanged. IV does not identify direction: a high IV can accompany expectations of a large rally, a large decline or simply substantial uncertainty in either direction.
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IV is not the same as historical volatility
Historical volatility (HV) measures how much the stock actually moved during a past period. IV describes the movement magnitude being priced for the future. Comparing them can provide context—for example, whether options are pricing more or less movement than the stock recently realized—but they are not interchangeable measurements. A stock can have quiet recent trading (low HV) and expensive earnings options (high IV) because the upcoming report is uncertain.
| Measure | What it describes | Direction included? | When it changes |
|---|---|---|---|
| Implied volatility | Forward-looking movement magnitude inferred from option prices | No | Whenever option prices, time, or other pricing inputs change |
| Historical volatility | Realized movement over a past period | No | As the selected historical window rolls forward |
| Expected move | Rough event-related dollar or percentage move extracted from options | No | As the stock price, quotes, strike, expiration, or IV changes |
| Volatility crush | A rapid post-event decline in IV | No | Often after scheduled uncertainty has passed |
What is the expected move for earnings?
The expected move is a snapshot of the movement magnitude that current option prices imply for a specified expiration and quote time. It is not a promise that the stock will remain inside a band, and it is not a directional forecast.
The common quick calculation uses an ATM straddle: buy or add together the premium of an ATM call and an ATM put with the same strike and expiration. The combined premium is the rough dollar expected move. Divide that amount by the current share price to express the estimate as a percentage. The Options Industry Council’s August 2026 FAQ describes it this way: “The at-the-money straddle price, divided by the stock price, gives a rough percentage estimate of the move the market expects around an event such as earnings.”
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The formulas
Dollar estimate: ATM call premium + ATM put premium
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Percentage estimate: (ATM call premium + ATM put premium) ÷ stock price × 100
For a live calculation, record the quote time, underlying price, ATM strike, expiration date and whether you used midpoint or last-traded prices. Those details are part of the estimate; changing any of them changes the result.
Illustrative calculation
Suppose a hypothetical stock trades at $50 and the same-strike ATM call and put together cost $4. The rough expected move is $4, or approximately 8% ($4 ÷ $50 × 100). That produces an illustrative range of about $46 to $54 around the event, but the range is only a way to visualize the estimate. It is not a guarantee, a floor or a ceiling, and the stock can move less or more.
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstallThe calculation is meaningful only when the selected expiration captures the earnings announcement. If the option expires before the report, it does not price the event you are trying to measure. If the report occurs after the market close, an expiration that ends before the following trading session may also fail to include the first post-announcement trading move. Always verify whether the release occurs before or after expiration.
Why earnings make IV rise
An earnings release can change a company’s valuation, guidance and risk outlook in minutes. Before the report, the outcome is unknown, so traders often pay more for options that cover the announcement. That additional uncertainty can raise IV and inflate both call and put premiums, even when the stock itself has barely moved.
IV is specific to an option’s strike and expiration. Contracts that include the announcement can carry much higher IV than contracts expiring before it or well after the event. The stock price, time remaining, interest rates, dividends and supply-and-demand conditions also affect the premium, so an earnings-related IV comparison should hold the other conventions as consistent as possible.
What is a volatility crush?
After the earnings report and guidance become public, the scheduled uncertainty has passed. IV often falls sharply, a move commonly called a volatility crush. Lower IV reduces the extrinsic portion of an option’s premium, sometimes quickly. The decline is common enough to plan for, but it is not automatic in every contract or market: an unexpectedly important development, a large price shock or changing demand for options can alter the result.
Why a correct direction can still lose money
A long option’s value depends on more than direction. The stock move affects intrinsic value and directional sensitivity; IV affects the premium assigned to future uncertainty; and time decay reduces the value of remaining time as expiration approaches. If IV falls enough after earnings, that loss in volatility value can outweigh the gain from being directionally correct. Time decay can add to the pressure.
The OIC article “The Crush Is Real” uses a hypothetical illustration: a $100 stock, a $105 call purchased for $2.90, and a later option value of $2.10 after the stock reaches $106. The stock moved upward, yet the option was worth less because the other pricing inputs changed. This is an illustration, not a typical result or a performance statistic.
How to calculate an earnings expected move step by step
- Identify the report timing. Confirm the scheduled earnings date and whether the release is before the open, during market hours or after the close.
- Choose an expiration that includes the event. The contract must remain active through the announcement and the trading session in which the market can react.
- Find the ATM strike. Select the strike closest to the current stock price. For a precise comparison, use the same strike for the call and put.
- Capture both quotes at the same time. Record the call and put bid, ask, midpoint or last trade, along with the stock price and timestamp. Midpoints can be useful when the spread is reasonable; a stale last trade may not represent the current market.
- Add the premiums. Call premium plus put premium is the rough dollar expected move.
- Convert to a percentage. Divide the combined premium by the stock price and multiply by 100.
- Label the result. Keep the expiration, strike, quote convention and timestamp with the number. It is a time-specific option-market estimate, not a permanent forecast.
How to compare two earnings stocks or two report dates
Comparisons are useful only when the measurements use consistent conventions. A raw percentage next to another raw percentage can be misleading if one option expires before the report, one quote is stale, or the stocks have very different prices and event timing.
- Expected dollar move: Compare the combined ATM straddle premiums.
- Expected percentage move: Divide each dollar estimate by its own stock price.
- Expiration: Check that each expiration captures the announcement and the relevant post-report trading session.
- Strike and quote quality: Use comparable ATM strikes and note whether midpoint or last-traded prices were used. Wide spreads or stale trades make the estimate less reliable.
- Current IV versus context: Compare each stock’s current IV with its own historical volatility or IV history rather than treating one absolute IV number as meaningful across all stocks.
- Time to the event: IV and the expected move can change as the report approaches, so record when each observation was made.
Do not present a universal accuracy rate for expected moves. Educational sources explain how to derive the estimate but do not establish a single percentage of earnings releases that remain inside it.
What the expected move does—and does not—tell you
It estimates magnitude, not direction
A straddle combines a call and a put, so the result is intentionally nondirectional. An $8 expected move does not mean the market expects an $8 rise. It means options are priced for movement of roughly that scale in either direction, subject to the estimate’s assumptions.
It is not a guaranteed range
The estimate is extracted from tradable premiums at a particular moment. Prices can move beyond it, remain inside it, or barely move. The estimate can also change before the announcement as IV, the stock price and the option quotes change.
It is not IV expressed as a probability
IV describes an annualized model input for movement magnitude over an option’s life. By itself, it does not state the probability of a specific price outcome. Treating an IV quote or an ATM straddle premium as a guaranteed probability band overstates what the market data supports.
Common mistakes and how to avoid them
- Using an expiration that misses earnings: Verify the report date and release timing before calculating.
- Mixing strikes: The quick straddle method requires the call and put to share the same ATM strike and expiration.
- Using stale prices: Capture quotes together and identify whether you used midpoint or last trade.
- Calling the estimate a forecast: Describe it as a rough option-price-based estimate, not a promise or directional call.
- Ignoring IV after the announcement: A long option can lose premium through volatility crush and time decay even after a favorable stock move.
- Comparing unlike observations: Keep event timing, expiration conventions, quote quality and measurement time consistent across stocks.
- Assuming every report creates a crush: IV often declines once uncertainty is resolved, but the magnitude and direction vary by contract and market conditions.
- Confusing HV with IV: Historical volatility describes past realized movement; IV is inferred from current option prices and looks forward.
A practical checklist before trading around earnings
- Write down the earnings date, release timing and option expiration.
- Record the stock price, ATM strike, call and put quotes, quote type and timestamp.
- Calculate both the dollar and percentage expected moves.
- Check the stock’s current IV against its own historical volatility or IV history.
- Consider how an IV decline could affect the option premium after the report.
- Separate the directional thesis from the volatility thesis: being right about the stock’s direction does not guarantee the option trade will be profitable.
Used this way, IV and the expected move are tools for understanding what option prices are charging for uncertainty around an event. They help frame the size of movement being priced, while leaving direction, realized outcome and post-earnings option value uncertain.
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