I have been trading options for a few months and keep hearing about iv crush but I am not sure what it means.
I lost money on trades that seemed right but option prices dropped. I heard iv crush might be affecting my positions.
Can someone explain how this works and how much it can impact option prices? I want to understand this better before my next trades.
Volatility crush occurs when there are high expectations for market moves, but things calm down after an event. This means you’re paying more for the anticipated action.
Once volatility normalizes, options can lose a lot of value quickly. It’s common to see losses of 30-50% overnight.
Timing is crucial. Buying options just before earnings typically means you’re facing inflated premiums that can vanish fast.
IV crush is real after earnings. I’ve lost 40% once despite calling the direction correct.
Options lose value fast when everyone expects big moves but nothing happens. It’s like insurance - you pay more when people think disaster’s coming, but if it doesn’t hit, that premium vanishes quick.
This kills your position even when you’re right about direction. Don’t buy options when IV is jacked up - sell them instead. When volatility gets pumped before events, I either sit out or find ways to profit from the crush.
Learned this the hard way when Apple moved exactly where I called it but my options still tanked 60%.
IV crush hits when implied volatility drops after earnings or other events. Your premium gets crushed even when you’re right about direction.
Now I always check IV percentile first. Above 70% and I usually stay away - too much crush risk.
Always check IV rank before you enter. Anything above the 50th percentile increases risk of a vol crush.
• Pre-earnings: IV runs 2-3x higher than normal
• Post-event: You may lose 60-80% overnight when vol collapses
• Gap between historical and implied vol indicates inflated premiums
Avoid going long when IV is elevated.