October 22, NOK reported. The stock went from $9.25 to $7.88 — −14.8% in a day. Two days later it bounced 7.1% to $8.72.

The same MAR 2027 12C: I sold it for $0.503 before earnings; afterwards it was $0.381 — 24% cheaper.

Most people would call that an IV crush. Break the number down: IV was only 12% of it.

1. Three Variables Around an Event

Earnings, M&A, FDA decisions, index changes — every event reaches a seller through only three channels:

1. IV: bid up before the event, collapsing after. You sell expensive, but you sell into maximum uncertainty.
2. The gap: price reprices in one opening print. Your stop never gets a chance.
3. Time: theta and gamma both run hot around the date.

Of the three, IV is what you collect, the gap is what you pay, time is what you wait through. Most people only watch the first.

2. A Real Ledger: Where the 24% Came From

Same contract, same expiry, six days apart: $0.503 → $0.381. Decomposed with Black-Scholes:

• Spot base ($9.03 → $8.72): about 68%
• Time value (150 → 144 days): about 20%
• IV (56.1% → lower): about 12%

The conclusion is slightly counterintuitive: “IV collapsed after earnings, so my premium got cheaper” is wrong. What made it cheaper was the stock falling away from the strike.

That doesn’t make IV irrelevant. It means: IV crush changes the value of your contract; the gap changes your account. One is a rounding error, the other is margin calls and forced liquidation.

3. Event Premium Cannot Pay for a Gap

What does a −14.8% gap mean? On 100 shares: $925 of market value, $137 gone in a day.

Premium on an out-of-the-money put might be $98. One gap eats more than a month of rent.

So selling into an event is an asymmetric trade by construction: limited premium collected, unlimited gap paid. That doesn’t make it forbidden; it means you price it with position size, not courage.

4. Three Treatments, Each With a Cost

① Avoid (recommended for most). No new positions inside two weeks of earnings. You give up a month of rent; you keep your options.

② Shorten (for existing positions). Move the expiry in front of the report so the contract settles before the event. Less theta collected; no risk carried overnight.

③ Hedge (for large positions). Spreads, protective puts, or trimming. Caps your upside; lets you sleep.

Doing none of these and relying on “I think they’ll beat” is not a strategy — it’s betting on an earnings report.

5. The Math of a Gap: Size Beats Forecast

The classic mistake is funding a prediction with position size:

Someone holds 400 RGTI shares, about 60% of net worth. He decides the report will beat, so he neither trims nor hedges. It misses, the stock drops 20% in a day, and the account loses 12% of net worth — against $92 of premium collected.

Right, and you make a dinner. Wrong, and you lose a month’s pay. That is the payout of expressing an event view with size.

The correct order is reversed: decide how much of a gap you can absorb, then size. If you can tolerate a 5% drawdown in net worth, only 5% of net worth belongs in the event.

6. How to Use an Earnings Calendar

You don’t need a forecast; you need a schedule:

1. Two weeks out: list every position whose expiry crosses an earnings date (name, expiry, strike, delta).
2. Define three lines per position: buy-back price, trim price, and worst case if it gaps 20%.
3. One week out: no new positions; manage existing short legs against those lines.
4. On the day: don’t trade. The first 30 minutes are noise with the worst spreads and IV of the cycle.
5. After: reprice once IV has collapsed — usually one to three sessions.

This process produces no income. It prevents you from making your most emotional decision at the worst price.

7. Four Mistakes

One: treating IV crush as the main risk. The main risk is the gap. IV collapse makes your contract cheaper; a gap makes your account cheaper.

Two: selling the “most expensive” contract before earnings. Event IV is the richest and the most dangerous. The biggest premium you ever collect is often the trade you should not have made.

Three: holding to expiry because “IV will drop after earnings.” If the stock gaps through your strike, IV is irrelevant — you are already assigned.

Four: averaging down on the day. The first candle after a gap is not a discount; it is a repricing. Averaging down only makes the position bigger at the wrong price.

8. When This Framework Doesn’t Apply

1. You sold a very far OTM strike in a very small size. A 20% gap doesn’t reach your strike, so the event premium is free money — provided the size is genuinely small.
2. You are trading an event-driven spread. A long leg caps the tail; different logic.
3. The earnings date itself is uncertain. Some companies move it; the calendar is not a guarantee, so leave a week of buffer.

9. Seven Questions Before You Open

1. Does the expiry cross an earnings date? Which day exactly?
2. If the stock gaps 20%, what is my worst-case loss and what share of net worth?
3. Does this premium cover one gap?
4. Am I selling premium, or betting on direction?
5. How will I handle existing positions in the week before?
6. If assigned, do I have the cash?
7. Can I wait one to three sessions for the post-event repricing?

10. One Line

Earnings are not for betting on. They are for scheduling around.

Event premium is real, but it cannot buy a gap — so price the gap first, and the premium second.

---

Related: Selling puts: win rate vs payout · Rolling is not a fix · The NOK 12C add

Data & Sources

• Updated 2026-11-13 | First published 2026-11-13
• NOK earnings: 10/22 from $9.25 to $7.88 (−14.8%), 10/26 +7.1% to $8.72, see the NOK 12C add
• Premium decomposition: $0.503 → $0.381 (−24%), spot base 68% / time 20% / IV 12%, same source
• RGTI 400 shares ≈ 60% of net worth and $92 premium, see exit day one
• Decomposition is a Black-Scholes attribution; components carry rounding error

Risk Boundaries

Structure and treatment only; not investment advice. Earnings, M&A and policy events can produce gaps far larger than expected, and IV is not forecastable. Scheduling reduces surprises; it does not remove them.