Post-Earnings Volatility Crush refers to the rapid decrease in implied volatility of an asset’s options contracts immediately following a significant scheduled event. Examples include a corporate earnings report or a major protocol upgrade announcement in crypto. This phenomenon reflects the dissipation of uncertainty priced into the options market.
Mechanism
Prior to an expected announcement, market participants often purchase options, driving up their implied volatility as they anticipate large price movements. Once the event occurs and the information is released, the uncertainty subsides. Consequently, the risk premium embedded in option prices diminishes, causing implied volatility to decline sharply.
Methodology
Traders leverage this predictable volatility behavior by selling options, particularly straddles or strangles, before the event and buying them back afterwards, or by employing more complex volatility arbitrage strategies. In crypto, this applies to tokens with major network upgrades, partnership announcements, or regulatory clarity events. Options markets anticipate significant price reactions, offering opportunities for volatility-focused trading.
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