A dated before-and-after IV comparison
Cboe Options Institute published this example in its June 11, 2019 webinar hosted by Fidelity. Slide 9 identifies the pre-event observation as after market close on May 29, 2019, with earnings before market open on May 30. Slide 14 reports post-event ATM IV. Its remaining-day counts place that observation on May 30; that date is inferred from the table. No exact clock time or timezone is supplied.
- Source: Cboe, Options, Volatility and Earnings, slides 9 and 14, linked below. The source labels these as illustrative examples and does not give fixed strike identifiers or executable bid/ask pairs.
- An ATM series can switch strikes after the stock moves. These observations show a term-structure change; they cannot establish the P&L of one unchanged contract.
| Expiration in 2019 | May 29 ATM IV | Post-event ATM IV | Change |
|---|
| May 31 | 112.11% (2 days left) | 34.31% (1 day left) | -77.80 percentage points |
| June 7 | 56.55% (9 days left) | 23.29% (8 days left) | -33.26 percentage points |
| June 21 | 40.52% (23 days left) | 23.18% (22 days left) | -17.34 percentage points |
Hold the stock price fixed to isolate IV and time
Use a separate hypothetical European call with stock S = $100, strike K = $100, zero interest and dividend rates, and calendar time T = days / 365. Assume the near expiry has 2 days left before the event and 1 afterward; the farther expiry has 9 and 8 days. Set near IV to 100% before and 40% after, and farther IV to 60% before and 40% after. These chosen values are not the Cboe observations.
- Near expiry: B - A = -$1.7712 from the IV change; C - B = -$0.3459 from elapsed time; D - C = +$1.3599 from the $2 stock rise. Total D - A = -$0.7573 per share, or -$75.73 for a hypothetical 100-share multiplier before costs.
- Farther expiry: the same sequence gives -$1.2519, -$0.1432 and +$1.1557 per share. Total loss is $0.2394 per share, or $23.94 with the same multiplier.
- The sums use unrounded values. This exact repricing decomposition depends on the order chosen because the price function is nonlinear. It is an explanatory accounting convention, not a unique causal attribution.
| Valuation step | Near call, per share | Farther call, per share |
|---|
| A. Before: S = 100; initial time and IV | $2.9524 (2 days, 100%) | $3.7573 (9 days, 60%) |
| B. IV only: S = 100; original time; IV = 40% | $1.1812 (2 days) | $2.5054 (9 days) |
| C. Time next: S = 100; one day passes; IV = 40% | $0.8352 (1 day) | $2.3621 (8 days) |
| D. Direction next: S = 102; post-event time and IV | $2.1951 (1 day) | $3.5179 (8 days) |
Reproduce the model instead of multiplying a large shock by vega
For these zero-rate, zero-dividend assumptions, C = S × N(d1) - K × N(d2), where d1 = [ln(S / K) + 0.5 × sigma² × T] / [sigma × sqrt(T)], d2 = d1 - sigma × sqrt(T), and N is the standard normal cumulative distribution. Enter sigma as a decimal: 40% is 0.40. At S = K = 100 this simplifies to C = 100 × [2N(sigma × sqrt(T) / 2) - 1].
- For step A of the near call, sigma × sqrt(T) / 2 = sqrt(2 / 365) / 2. Substitution gives $2.952429. Repeating with sigma = 0.40 gives step B, $1.181198.
- Vega estimates a local change while other inputs stay fixed. A 60-percentage-point IV decrease is too large to assume the starting vega remains constant. Reprice both endpoints; also check whether a platform quotes vega per one percentage point or per 1.00 decimal volatility.
- At T = 0 use max(S - K, 0), not a formula that divides by sqrt(T). With sigma = 0 and the stated zero rates, use the same intrinsic-value limit. Require S and K to be positive, and reject negative time or volatility.
- This European diffusion model omits discrete earnings jumps, changing skew, early exercise, dividends, rates, spreads and fees. It explains sensitivities; it does not estimate the probability distribution of a real earnings event.
A larger IV drop does not identify the better trade
Annualized IV compresses a whole remaining lifetime into one number. A single event contributes a larger share of that lifetime when expiry is close. A useful approximation is total variance = background variance rate × T + event variance, provided the event occurs before expiry. Removing that event can reduce annualized IV sharply in the shortest contract.
- Compare total variance sigma² × T as well as IV percentage points. For the hypothetical near call, it changes from 1.00² × 2 / 365 = 0.005479 to 0.40² × 1 / 365 = 0.000438. Both the IV input and remaining time changed.
- A farther option can have more dollar vega even when its percentage-point IV fall is smaller. Match strike or delta deliberately, retain each contract identifier, and compare premium paid, position size and transaction costs.
- Check whether the event is actually inside each expiration and whether another event remains. A calendar spread has exposure to two volatility surfaces; the two legs need not reprice in parallel.
Why an earnings seller can lose through a crush
Reverse the hypothetical near-expiry call and add a matching short put. At S = K = 100 with zero rates, put-call parity gives the same $2.952429 value for each leg, so the modeled straddle credit is $5.904858 per share. If the stock jumps to $110 while IV falls to 40% and only one day remains, the combined option value is about $10.000002. Buying it back would lose $4.095144 per share, about $409.51 for a 100-share multiplier, before costs.
- The fall in volatility did occur in this scenario. The stock move still overwhelmed the premium received. A naked short call has unbounded upside exposure; a short put has substantial downside exposure.
- A quoted midpoint is not a fill. Wide spreads, missing quotes, partial fills and trading halts can change the result. American-style short options also introduce assignment and stock-position obligations absent from this European model.
- Unexpected follow-up news can keep IV high or raise it. A scheduled announcement is not a promise that uncertainty, or option value, will fall afterward.
Set up the comparison in TradingView Options
TradingView documents custom what-if scenarios with time shifts and IV shifts in its Options Strategy Builder. Start with one available contract and preserve the baseline. Create an IV-only scenario, a time-only scenario and a combined scenario; compare each at the same stock price on the chart before examining a different price.
- Repeat for another expiry with its own baseline IV. For a straddle, use a call and put with the same strike, expiry and matched quantities, then inspect each leg as well as the combined result.
- The documentation labels IV shifts in percent. Confirm the resulting absolute IV before comparing it with this table: 100% to 40% is a 60-point fall, whereas 60% to 40% is a 20-point fall. Do not assume the same shift setting reproduces both.
- A negative time shift reprices a scenario; it does not retrieve historical quotes. Historical validation requires independently saved contract data at both observation times.
Preserve contract evidence and assumptions in Pineify
AI Stocks & Options Picker has an expiration selector and a call/put options-chain view with IV and bid/ask fields where supplied. Use it to inspect available current inputs. Its chain view is not a historical before-and-after event archive, and missing data must not become zero IV or zero premium.
- For each leg, record the underlying, full contract identifier, strike, expiry, direction, quantity, multiplier, bid, ask, IV and underlying price. Obtain and retain the source observation time and timezone; a screenshot capture time alone does not establish quote freshness.
- Use Trading Journal plan and review notes to keep the event source, pre/post observations, model assumptions and actual fills separate. Record stale or unavailable quotes explicitly. Notes support review; they do not automatically reconstruct multi-leg historical P&L.
