Why does implied volatility rise before earnings?

Implied volatility rises before earnings because an option that is still alive on the report date carries the chance of a large move when the results come out, and the market prices that uncertainty into the option. The effect shows up most clearly in the first expiry that spans the report. As of 2026-10-16, the same TSLA $355 call showed it plainly: the expiry that ended before Tesla's 2026-10-21 report carried an implied volatility estimate of 43.7%, while the expiry that spanned it carried 74.6%. This post walks through those two real prints, why the date matters so much, and what traders mean by "IV crush".

What implied volatility is

The Options Industry Council describes implied volatility as a measure of how much the marketplace expects the asset price to move, based on the price of the option.¹ It can significantly affect the time value portion of an option's premium, and an expectation of a larger move generally results in higher premiums for puts and calls alike.²

Implied volatility is quoted as an annualized percentage. That detail is the key to this post. Because it is annualized, two contracts with different amounts of time left can be compared on the same scale.

Earnings reports are one of the clearest cases where implied volatility changes on a schedule. OIC describes a common pattern: implied volatility typically climbs in the weeks before an earnings announcement and often falls sharply once the announcement resolves the uncertainty.³

When Tesla reported

Tesla's Q3 2026 production and deliveries release, filed with the SEC, set the date and time.⁴

Because the results arrived after the close, the first regular session that could react to them was the next trading day. A TSLA option that expired on 2026-10-19 ended before the report. An option that expires on 2026-10-23 carries the report inside its life.

The worked example: one strike, two expiries

As of 2026-10-16, CaymanBot's public trades feed shows two prints in the TSLA $355 call, taken 40 seconds apart near the close, with TSLA near $351.7 for both.⁵ One is in the 2026-10-19 expiration, which ended before the report. The other is in the 2026-10-23 expiration, the first expiry after it.

The IV column is CaymanBot's own per-print implied volatility estimate, annualized and computed from the trade. It is not a figure published by an exchange. The Oct 23 print traded slightly above its quoted ask; it is shown here as the recorded print.

Step 1: the cost of one contract

A standard contract covers 100 shares, so the contract multiplier turns each quoted price into dollars per contract:

Both calls had a $355 strike, above TSLA at $351.66 and $351.785, so neither had any intrinsic value. Everything paid for each one was extrinsic value.

Step 2: why the price comparison alone misleads

The Oct 23 contract cost $1,330 against $415. That gap mixes two effects. The Oct 23 contract also has more calendar days to expiry, and more time by itself makes an option cost more:

So the price comparison cannot show how much of the difference is time and how much is the report.

Step 3: the implied volatility comparison

Implied volatility is annualized, which takes the time difference out of the comparison. Comparing the two estimates is what isolates the earnings effect:

On the same strike, 40 seconds apart, with TSLA near the same price, the expiry that spanned the report carried an IV estimate about 1.7 times the one that ended before it.

Why the rise concentrates in short expiries

Picture the report as one known day on which a large move is possible. A contract with only a few days left has to fit that whole day into a short life, so the possible jump is spread over very few days. Once that is expressed as an annualized figure, it lifts the short expiry's implied volatility a lot.

A contract months away spreads the same single day over many ordinary days, so its annualized figure moves much less. That is why the rise in implied volatility before an earnings date is usually easiest to see in the first expiry after the report, as in the Oct 23 contract above.

What IV crush means

"IV crush" is the name for the second half of the pattern OIC describes: once the announcement resolves the uncertainty, implied volatility often falls sharply. Because implied volatility is part of an option's price, an option can lose value after the report even when the stock moves the holder's way.³ Our glossary entry on IV crush covers the term in more detail.

Two cautions keep this honest. First, OIC describes a common pattern, and it does not play out the same way after every report. Second, the two prints above describe only what these contracts cost on 2026-10-16. They say nothing about what TSLA or its options did on or after 2026-10-21.

How options traders read this

The earnings date is a fact you can look up before you read any price. A few general habits follow from the example:

• Check whether an expiry falls before or after the next report before comparing two contracts.
• Compare implied volatility across expiries, since raw prices mix in the time difference.
• Remember that the part of a price that comes from implied volatility is the part exposed to a post-report drop. The vega entry explains how sensitive a price is to that.

The expected move calculator turns an expiry's implied volatility into a dollar range for the stock. Our earlier post on options that expire after an earnings date works through the same comparison on Netflix's report, and our post on what move TSLA and META options were pricing for earnings reads the Oct 23 straddle a day before this report.

How to practice this

Open a free CaymanBot account, open TSLA in the app, and look up the same strike in two expiries, one before an earnings date and one after it, then compare the implied volatility next to each print. In the first two Learning Mode stages, each trade on the feed comes with a plain-English sentence you can check against the strike, expiry and premium. You can then open either contract in the $100K paper account and follow its price across a report, with no real money at stake. A free account shows options data delayed 16 minutes (60 minutes without an account).

Educational only, not investment advice.