Post-Earnings Premium Decay: The Math of the Crush

The crush math, step by step:

1. Pre-print: front-week IV ~80% (elevated for the event)
2. Straddle price: ~9% of stock price = the cost of buying both sides
3. Post-print: IV collapses to ~35-40% (normal regime) — the option loses most of its extrinsic value overnight
4. The threshold: if the stock moves MORE than the straddle price (9%), buyers win; less, sellers win

The formula that matters: Expected value of selling = (1 - P(big move)) × premium collected − P(big move) × loss on tail

At 9% implied vs ~6.5% historical realized: sellers have the edge IF the distribution is normal. It usually isn't perfectly — but it's close enough that sell-the-crush wins more often than it loses.

Run the numbers on Stock Picks.