Been trading options for a few months and hearing a lot about IV affecting prices. Sometimes my trades go the right way but I still lose money.
I wonder if it’s due to implied volatility dropping. How much does IV actually change option prices? Should I focus on this more?
Volatility can wipe out 30-50% of your option value overnight when it drops hard. This happens constantly around earnings and news events.
What saves me money is looking at the IV rank before I buy anything. If it’s sitting above the 70th percentile, I either stay away or switch to selling options instead of buying them.
Most traders ignore this completely and wonder why their timing is right but their account keeps shrinking. The option price has two main parts - the actual move and the fear premium. When fear drops, your premium drops with it.
IV crush kills profits even with correct direction calls.
• High IV = expensive premiums
• Low IV = cheap premiums
• IV drop after events = instant losses
Check IV percentile before entry. Avoid buying high IV options before earnings or major announcements.
Math works against positions when implied volatility is high because time decay speeds up after volatility drops. Options can lose value even if the stock moves favorably.
It’s smart to check historical volatility against current IV before trades. If current IV is much higher than usual, those premiums are inflated and will deflate quickly.
Timing trades during low IV periods can help avoid the frustration of winning directions while still losing money.
Got burned hard by IV crush on my Apple calls right after earnings last month. Direction was perfect but still lost 60% overnight.
Now I always check if IV is above 30th percentile before buying options. Sometimes I even sell high IV options instead of buying them.
Learned this lesson the expensive way after three similar losses in my second year.