Event Risk

Event risk refers to the potential for a significant stock price move caused by a known upcoming catalyst — most commonly earnings reports, but also FDA decisions, legal rulings, product launches, or economic data releases. Options markets price event risk through elevated implied volatility ahead of the event. The closer the event, the higher the IV (and premium) in the relevant expiration, as traders demand compensation for the uncertainty.

Understanding event risk is crucial for strategy selection. Buying options before earnings means paying inflated premiums that will collapse after the announcement (IV crush), so the stock must move more than the market expects just to break even. Conversely, selling options into an event captures rich premiums but exposes you to potentially large moves. Neither approach is inherently better — the key is understanding what's priced in and whether you have an edge on the magnitude or direction.

Options Pilot's Timing pillar directly measures event risk through days-to-earnings, scheduled catalyst dates, and IV term structure analysis. When earnings are within 7 days, the system flags elevated event risk and adjusts strategy recommendations accordingly — for example, suggesting shorter-dated or post-earnings strategies instead of positions that would be exposed to IV crush.