IV Crush

What is IV Crush?

IV Crush IV Crush is the sharp decline in implied volatility that occurs immediately after a known binary event — most commonly earnings announcements. Implied volatility expands sharply in the days leading up to the event, then collapses ("crushes") once the uncertainty resolves. This collapse can wipe out gains on long-options positions even when the underlying moves in the trader's favor. The mechanism is simple: implied volatility prices the market's uncertainty about future price movement. Before an earnings report, traders don't know whether the company will beat, miss, or guide higher/lower. The options market prices in elevated uncertainty. Once the report releases, the uncertainty resolves regardless of the actual outcome — IV reverts to baseline levels. Typical IV crush magnitudes: - Major mega-cap earnings (AAPL, MSFT, NVDA): IV drops 20-40% post-event (e.g., 60% IV pre-earnings collapses to 35% the morning after). - Single-stock biotech around FDA decisions: IV drops 50-80% post-decision (often 150% pre-event collapses to 40% post). - SPX/SPY around FOMC: IV drops 5-15% post-announcement. - Pre-earnings IV expansion typically starts 1-2 weeks before the event and peaks within 1-3 days of the release. The implication for option buyers is severe. A long straddle bought 5 days before earnings might need a 7-8% directional move just to break even on the IV crush, even though the implied move was 5%. This is why systematic earnings straddle buying has historically been a money-losing strategy — the realized move has to dramatically beat the implied move just to overcome the crush. For option sellers, IV crush is the structural edge. Selling iron condors or strangles 1-3 days before earnings and closing after the announcement consistently produces small wins (60-70% win rate) because the IV collapse drives the position into profit regardless of the directional outcome — as long as the move stays within the short strikes. The most common IV crush trade is the "earnings condor" — sell an iron condor centered on the expected move 1-2 days before the announcement, close the position within hours of the open the next morning. The position benefits from both IV crush and theta over the binary event window. IV crush is not a one-time event. There's a secondary, smaller IV decay that continues for 1-2 weeks post-event as IV normalizes from the immediate post-announcement level back to baseline. Position management within this window matters.