IV Crush Explained: Why Options Lose Value After Earnings

Earnings are tomorrow. You buy a call option. The stock goes up 5%, but your option loses 30%. Welcome to IV crush—the phenomenon that destroys options traders who don't understand implied volatility.

What Is IV Crush?

IV Crush is the rapid drop in implied volatility (IV) after a major event. When IV drops, option prices plummet—even if the stock moves in your predicted direction.

The Classic IV Crush Scenario

Before Earnings:

• Stock at $100, IV at 80%
• Call option worth $5.00
• Market expects big move

After Earnings (stock up 5%):

• Stock at $105 (+5%)
• IV drops to 30% (crush!)
• Call option worth $3.50 (-30%)
• You were right but still lost money

Why IV Crush Happens

Before earnings, nobody knows what will happen. This uncertainty inflates option prices. After earnings, the uncertainty is gone. Option prices deflate instantly.

Before Event (High IV)

Market expects a 10% move (up or down). Options are expensive because of this uncertainty. IV might be 60-100%.

After Event (IV Crush)

Stock moves 5%. Event is over, uncertainty gone. IV drops to 30-40%. Option prices collapse even if you predicted the direction correctly.

Common IV Crush Events

Event	IV Before	IV After	Crush Risk
Earnings	60-100%	30-40%	Very High
FDA Approval	80-150%	30-50%	Extreme
Election	40-60%	20-30%	High
Product Launch	50-70%	30-40%	High

How to Avoid IV Crush

Strategy 1: Don't Buy Before Events

Avoid buying options 1-2 weeks before earnings. IV is already inflated. You're paying a premium for uncertainty.

Better: Buy options after earnings when IV is low, or buy stock instead.

Strategy 2: Sell Options Before Events

Sell covered calls or cash-secured puts before earnings. You collect the inflated premium and profit from IV crush.

Risk: If stock moves against you significantly, you lose more than the premium collected.

Strategy 3: Use Spreads

Buy a call spread instead of a naked call. The short leg offsets some IV crush.

Example: Buy $100 call, sell $110 call. IV crush affects both legs, reducing net impact.

Strategy 4: Check IV Percentile

Before buying, check if IV is in the 90th percentile (very high). If so, it's likely to crush after the event.

Tool: Most brokers show IV rank or IV percentile. Above 75% = high crush risk.

FAQ

Can I profit from IV crush?

Yes! Sell options before earnings (covered calls, cash-secured puts, credit spreads). You collect inflated premiums and profit when IV drops. Just understand the risk if the stock moves sharply against you.

How do I know if IV is high before buying?

Check IV rank or IV percentile on your broker platform. Above 75% = high. Above 90% = very high crush risk. Compare current IV to the stock's historical average IV.

Does IV crush happen every earnings?

Yes, almost always. IV is elevated before earnings and drops after, regardless of the stock's direction. The only question is how much it drops (30-70% reduction is typical).

What if the stock makes a huge move after earnings?

If the stock moves 15-20%+, you can still profit despite IV crush. The intrinsic value gain outweighs the IV loss. But for normal 3-5% moves, IV crush usually wins.

Should I ever buy options before earnings?

Only if you expect a massive move (10%+) and you're comfortable with the risk. Most traders should avoid it. If you must play earnings, consider spreads or selling options instead.

Respect IV Crush

IV crush has destroyed more options traders than any other phenomenon. Here's your survival guide:

Rule 1

Check IV rank before buying

Rule 2

Avoid buying 1-2 weeks before earnings

Rule 3

Consider selling options instead

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Key Takeaways