CRDO Iron Butterfly Option Trade Post-Earnings: Loss Analysis and Market Dynamics

This analysis is based on a Reddit (WallStreetBets) discussion [1] about a user’s Iron Butterfly option trade on CRDO ahead of the company’s Q2 2026 earnings announcement (December 1, 2025). The user sold two Iron Butterflies, collecting $3,295 in premiums with a maximum loss of $705, aiming to profit from time decay (“theta gang” strategy).

CRDO reported strong Q2 2026 results: revenue increased 272% YoY to $268M, non-GAAP net income reached $128M, and the company provided guidance for 27% sequential revenue growth in Q3. Additionally, three new growth pillars were announced—Zero Flap optics, ALCs, and OmniConnect gearboxes—expanding the company’s total addressable market (TAM) [0].

Post-earnings, CRDO’s stock price initially spiked to a daily high of $183.69 before falling back to a close of $171.13, representing a 3.64% decline from the previous day’s close [0]. This significant price movement occurred alongside a sharp drop in implied volatility (IV): from 170-175% pre-earnings to 105.58% post-earnings (IV crush) [0]. WSB commenters criticized the trade’s viability due to the extreme pre-earnings IV and CRDO’s inherent volatility (8% daily moves on no news), noting the trade had moved to a loss as the stock price exited the Iron Butterfly’s profit window [1].

1. Short-volatility strategies face amplified risk with extreme IV
   : The Iron Butterfly trade was vulnerable to CRDO’s pre-earnings IV of 170-175%, which priced in large expected earnings-driven price swings. The subsequent IV crush compounded losses as the stock moved beyond the trade’s breakeven range.
2. CRDO’s inherent volatility challenges non-directional trades
   : Even without earnings news, CRDO can experience 8% daily price movements, making it difficult to predict the narrow price range required for Iron Butterfly profitability.
3. Earnings-driven price dynamics can override theta decay
   : While the user targeted time decay (theta), the sharp spike and subsequent drop in CRDO’s stock price (outside the trade’s profit window) led to losses despite theta decay.
4. Strong fundamentals contrast with short-term trade outcomes
   : CRDO’s record earnings, positive guidance, and new growth pillars support long-term bullish sentiment, even as the short-term option trade resulted in losses.

• High short-term volatility
  : CRDO’s 8% daily price moves on no news increase risk for options traders, especially those relying on narrow price ranges.
• IV crush post-earnings
  : For short-volatility strategies like Iron Butterflies, the decline in IV after earnings can magnify losses if the stock moves significantly.
• Unpredictable earnings price reactions
  : CRDO’s initial spike followed by a decline highlights the difficulty of forecasting exact post-earnings price movements.

• Long-term growth prospects
  : The company’s new product pillars and expanding TAM, supported by strong earnings and guidance, may drive future price appreciation.
• Potential for fundamental momentum
  : Positive earnings results and growth initiatives could attract long-term investors, supporting sustained bullish sentiment.

• Trade Details
  : Reddit user sold two CRDO Iron Butterflies pre-earnings, collecting $3,295 in premiums; trade now at a loss.
• Earnings Results
  : Q2 2026 revenue +272% YoY ($268M), strong Q3 guidance, new growth pillars.
• Price & Volatility
  : Stock spiked to $183.69, closed at $171.13 (-3.64%); IV fell from 170-175% to 105.58%.
• WSB Comments
  : Mixed views—bearish on the trade (high IV/volatility), bullish on CRDO long positions, note trade loss and volatility risks.

This analysis provides market context and event-related insights without offering specific investment recommendations.