u/Accurate-Exchange298

A lot of discussion swirls around IV crush post earnings and the impact of Vega on the P&L of aLong Call directional bet. I have explained the IV crush in the past and this is what it would look like for NVDA with its earnings being eagerly awaited on 5/20/2026. The math below uses Black-Scholz model to predict the P&L depending upon where NVDA ends post earnings. The thing to rememeer is that the IV is elevated pre-earnings , up to the day of the event . Once the earnings are out, the IV collapses and Vega losses kick in . Even if the stock moves higher (but not enough), the delta gains are unable to offset the Vega losses .

DISCLAIMER - I am not a financial advisor and the data presented is by no means a recommendation to place a trade. This is just a math model showing the impact of IV crush post-earnings . I bear no responsibilty for any losses on any trade based on this presentation. This material is strictly for education purposes only.

Assumptions :

ASSUMPTIONS

Potential P&L for 1 contract

EXAMPLE ROW - Impact of Vega and Delta on the final option price for a 3% move:

https://preview.redd.it/jhhhsq12bt1h1.png?width=836&format=png&auto=webp&s=1578277c61bf099bb2d06d01414d850f45b1ebad

Intrinsic Floor value :

At stock $231.75, the call is $6.75 ITM. Intrinsic = $231.75 - $225 = $6.75. Plus $0.05 extrinsic buffer = $6.80.

I use the formula - MAX(intrinsic floor, linear estimate) = MAX($6.80, $6.18) = $6.80.

The P&L: $6.80 - $8.75 paid = -$1.95

Rule I usually follow: sell covered calls, let them get assigned, move on.

TRADE 1 : Broke the rule on AMD

3/3: Sold the 8/22/26 $210 call against 100 shares for $23.41.
Cost basis $186.
Max profit at expiry: $2,110.

5/6 : bought the call back at ~$212, sold shares same time.
Share gain: $20,770
Option loss: $18,939
Net Profit : $1,831

86.7% of max profit in 2 months.
The last $279 isn't worth 3 more months of tied-up capital.

TRADE 2: Broke the rule on NBIS

Sold the August $90 for $599 a while back when NBIS was in the dumps.

Stock ran to $196 after earnings. Could have let it assign and walked with $599.

Bought back and rolled up to a July $230 for $24 credit instead.

Rolled UP and In. Shorter time in the trade to capture the Theta decay.

New max profit: $5,722. 9x what assignment would have paid in August

The buyback was painful. Took a loss to keep the trade alive with real upside.

The catch: I need NBIS above $176 at July expiry to make this work.

NBIS is currently at $220.

Sometimes the math looks too good to pass up if you can look past the pain of the buyback.

Many traders buy calls before the earnings, hoping the stock will go up after the earnings and they will make a bundle .. That is true if the stock really takes off .. But if there is a moderate move in the stock , you could still see a loss in your account and wonder why .. because you expected a profit .

This is because of the IV (Implied Volatility) crush after earnings.. Let us see how each Greek contributes to your total loss or gain in terms of real dollars...

Before I illustrate, please keep this in mind - IV rises steadily before the earning and crashes after the earnings .. dropping the price of the options ...

Let us say , before the earning, the stock is at 100 and you buy a call with Strike 105 .

IV = 75% , DTE= 5, Delta = 0.3 and Vega = 0.6 and you paid a premium of $2.20

After earnings:

The stock is at $104 .. so you think can sell the call for $4.0 ...and hence net a profit of $180 .

Here is the problem ..

After earning,

IV = 30% , Delta = 0

Loss from Vega = (Final IV - Starting IV) * Starting Vega

= (30 - 75) * 0.06

= - $2.7

Gain from Delta = (Final Stock Price after earning - Starting Stock Price) * Change in Delta

= ($104 - $100) * 0.3

= $1.2

Remaining Value of the call =

$2.20 entry − $2.70 vega loss + $1.20 delta gain = $0.70 remaining value

So you can sell it back only for 0.7 , thereby losing $150 even when the stock is at 104 .. you were directionally correct , but the stock did not move enough ..

Hope this helps