IV Crush Mistakes
Understand how IV crush destroys profitable directional trades and learn strategies to profit from volatility changes instead of suffering from them.
Why This Matters
IV crush occurs when implied volatility drops sharply (typically after earnings or events), causing option prices to collapse even if the stock moves in your direction. Options are priced for uncertainty. After the uncertainty resolves (earnings announcement), IV drops to normal levels, crushing option premiums regardless of stock direction.
Buying Options Before Earnings at High IV
criticalPurchasing calls or puts right before earnings when IV is elevated. Stock moves in your direction but option barely profits or loses money.
Check IV rank before buying. If above 50%, use spreads to reduce vega exposure. Better yet, sell premium instead of buying it.
TSLA IV at 80% before earnings. Buy calls for $5.00. Stock rises 3% but IV drops 40%. Call worth $4.50 despite being right on direction.
Not Understanding the Expected Move
criticalOptions price in an expected move. If stock moves LESS than expected, both calls and puts lose money. Many traders don't calculate this.
Calculate expected move: Straddle price / Stock price = Expected %. Stock must move MORE than this to profit. Use our Event Analysis tool.
AAPL straddle costs $8 with stock at $150. Expected move is 5.3%. Stock moves 4% up. Both call and put buyers lose money.
Using Wrong Expiration for Events
highUsing longer-dated options for earnings trades. IV crush affects the front-month most, but longer-dated options still lose significant value.
For earnings plays, use the nearest expiration after the event. This isolates the event and minimizes cost. Or sell premium using weeklies.
Buy 60-day call before earnings. Stock pops 8%. But call had 30% IV crush across all time value. Only modest profit despite big move.
Double-Down After IV Crush
highAfter losing to IV crush, buying more options at now-lower IV thinking they're cheap. Stock continues drifting, theta decay continues.
Once IV has crushed, the edge from volatility is gone. Either sell the remaining position or accept the loss. Don't compound mistakes.
Lost on earnings call. Buy more 'cheap' calls. Stock does nothing for 2 weeks. Theta decay takes another 40%. Double the loss.
Ignoring Term Structure
mediumNot checking if near-term IV is elevated relative to longer-term. Can indicate event premium that will crush after the catalyst.
Compare front-month IV to back-month IV. If front is significantly higher, there's event premium. Either sell front or use calendar spreads.
Weekly IV at 60%, monthly at 40%. 20 points of 'event premium' in the weekly. After earnings, weekly IV drops to 35%. Massive crush.
✅ Prevention Checklist
IV Crush Math Example
NVDA at $500, earnings tomorrow:
- ATM call costs $25 (5% of stock price)
- IV rank: 85% (very elevated)
- Expected move: ~5%
- Stock rises 4% to $520 (good move!)
- IV drops 50% after earnings
- Call now worth $22 - you lost $3 despite being right
Frequently Asked Questions
What is IV crush?
IV crush is the rapid decline in implied volatility after an anticipated event (like earnings) occurs. Options prices drop significantly because the uncertainty that was priced in is now resolved. A stock can move in your direction and you can still lose money due to IV crush.
How do I avoid IV crush?
To avoid IV crush: 1) Check IV rank before buying - if above 50%, use spreads instead of naked options, 2) Calculate the expected move - you need to beat it to profit, 3) Consider selling premium instead of buying when IV is high, 4) Use calendar spreads to exploit IV term structure differences.
Related Resources
Ready to Trade Smarter?
Practice in our simulator before risking real capital. Learn from mistakes without the cost.