What Is IV Crush?
Implied volatility (IV) crush is the rapid decline in options premiums that occurs immediately after an earnings announcement. Before earnings, uncertainty is high—no one knows the results—so options prices are inflated to reflect the potential for a big move. Once the earnings are released and the uncertainty is gone, that premium evaporates, often overnight.
Understanding IV crush is the difference between profitable and unprofitable options trades during earnings season.
The Mechanics of IV Crush
Before Earnings: IV Expansion
In the 1-2 weeks before an earnings announcement, implied volatility steadily rises:
- Option premiums increase as traders buy protection or speculate on the move
- A stock's IV might rise from 30% to 80% or higher heading into earnings
- The at-the-money straddle price reflects the market's expected move
After Earnings: The Crush
The moment earnings are released:
- IV drops 30-60% overnight as uncertainty resolves
- An option worth $5 before earnings might only be worth $2 the next morning—even if the stock moved in your direction
- Time value component of options collapses since the anticipated event has passed
How IV Crush Affects Different Strategies
Option Buyers: Fighting the Crush
If you buy a call or put before earnings:
- The stock needs to move MORE than the implied move just to break even
- A stock moving 5% in your direction after earnings might not be enough if the implied move was 8%
- Even being right on direction can lose money if the move isn't large enough
How TradAdvisor helps: Our platform shows the implied move for each stock alongside our AI prediction. When TradAdvisor's prediction confidence is high AND historical data shows the stock tends to exceed its implied move, that's when buying options has the best expected value.
Option Sellers: Profiting from the Crush
Selling options before earnings profits from IV crush:
- Iron condors and credit spreads collect inflated premiums
- If the stock stays within the expected range, the premium collapses in your favor
- Win rates are typically higher for sellers, but losses on the occasional big move can be significant
How TradAdvisor helps: Use TradAdvisor's historical earnings data to identify stocks that consistently move LESS than their implied move—these are ideal premium selling candidates.
Calculating the Implied Move
The expected earnings move is calculated from the options market:
- Find the at-the-money straddle price for the nearest expiration after earnings
- Divide by the current stock price to get the percentage expected move
- Example: Stock at $100, straddle costs $8 → expected ±8% move
If the actual move exceeds this, option buyers profit. If it's smaller, option sellers win.
Strategies to Navigate IV Crush
1. Spreads Instead of Naked Options
Vertical spreads (bull call spreads, bear put spreads) partially offset IV crush because you're selling an option that also experiences crush. The net effect of IV changes is reduced.
2. Calendar Spreads
Buy a longer-dated option and sell the near-term option. The near-term option experiences more IV crush, potentially leaving you with a profitable position in the longer-dated option.
3. Post-Earnings Entry
Wait until after earnings to buy options. IV is at its lowest point post-crush, making options cheaper. If you expect continued momentum (TradAdvisor's Post-Earnings Announcement Drift signals), buying post-crush options offers better value.
4. Stock Instead of Options
When TradAdvisor shows a high-confidence directional prediction but the implied move is very large (meaning expensive options), consider trading the stock directly. No IV crush to worry about—just pure directional exposure.
Using TradAdvisor to Make IV Crush Work For You
TradAdvisor's stock pages provide the data you need to make IV-informed decisions:
- AI prediction confidence: High confidence on stocks with historically understated implied moves = prime buying opportunities
- Historical move data: See whether a stock typically exceeds or falls short of its implied move
- Social sentiment: Strong sentiment shifts can indicate moves larger than the options market expects
Visit TradAdvisor's Stocks page to see predictions and earnings data for 415+ companies and make IV crush your ally, not your enemy.