How a long call can lose money at expiry even if the stock is up .. You were directionally correct and still lost money around earnings

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