🎙️ Watch the IV Crush Podcast Episode
In this article, I’ll walk you through what IV Crush is, when it happens, how to avoid getting burned by it, and how I personally trade around it using strategies like iron condors that can actually profit from this event. With the right approach, traders can theoretically profit from IV crush by understanding and managing the associated risks.Introduction to Implied Volatility
Implied volatility (IV) is at the heart of options trading, shaping how options are priced and how traders interpret the market’s mood. Simply put, implied volatility reflects the market’s expectation of how much a stock’s price might move in the future. When uncertainty is high—such as before earnings announcements or significant corporate events—implied volatility tends to rise, making options more expensive. This is because the options market is pricing in the possibility of big moves, even if they never materialize. For options traders, understanding implied volatility is essential for making smart decisions. High IV can signal opportunity, but it also means you’re paying a premium for that uncertainty. Higher implied volatility reflects the market’s expectation of significant price movement, and options pricing incorporates this collective outlook from market participants. Conversely, low IV might mean the market expects calm waters ahead. By keeping an eye on implied volatility, especially around key events and market expectations, traders can better gauge whether options are overpriced or underpriced—and position themselves for successful options trading.What Is Implied Volatility Crush?
IV Crush stands for Implied Volatility Crush—a sudden and sharp drop in an option’s implied volatility, usually after a major known event like earnings announcements, economic reports, or Fed meetings. This sharp decline in implied volatility following major events is commonly referred to as “implied volatility (IV) crush” in the options trading community. Implied volatility (IV) is the market’s forecast of how much a stock will move. Ahead of big events, this expectation rises, and so do option prices—even if the stock hasn’t moved yet. But once the event is over—say, earnings are released and the world knows what happened—uncertainty evaporates. Traders no longer need to “price in” surprises. And just like that, there is a sudden decrease in IV—it drops off a cliff. This drop is the crush. And it affects both calls and puts Think of it like an inflated balloon. All that pressure and buildup ahead of the event—then pop. Option values deflate fast, even if the stock goes in your direction. That’s why IV Crush feels like getting punished for being right.When and Why Does IV Crush Happen?
IV Crush usually strikes immediately after a scheduled event—earnings, Fed decisions, inflation data, or even major product announcements, or other major event. Why? Because those events introduce uncertainty. And uncertainty is expensive. In the days or weeks leading up to a big event or significant event, implied volatility rises as traders prepare for a possible surprise. That rising IV inflates the price of both calls and puts—whether you’re bullish or bearish doesn’t matter. The entire options chain becomes more expensive. But once the event passes—whether the news is good, bad, or boring—that uncertainty vanishes. And so does the extra premium baked into your options. IV drops are often influenced by market makers, who adjust implied volatility to reflect the reduced uncertainty after the event. The result? A rapid drop in implied volatility, known as the crush. This decrease in implied volatility leads to a sharp decline in option prices, regardless of the stock’s movement. This drop disproportionately hurts option buyers—especially those who bought just before the event. Even if the stock moves as expected, the option might lose value due to the volatility collapse. If you’re not factoring in IV Crush, you’re basically paying for insurance you no longer need—and getting hit when the market cancels your policy.Earnings IV Crush: The Classic Trap
One of the most common pitfalls in options trading is the earnings IV crush. In the days leading up to an earnings announcement, implied volatility often surges as traders brace for surprises. On earnings day, the release of the earnings report often triggers a rapid change in implied volatility, leading to IV crush. This anticipation inflates options prices, making both calls and puts more expensive. However, once the earnings announcement is released and the uncertainty is resolved, implied volatility can experience a sudden drop—sometimes within minutes. This rapid decline, known as the earnings IV crush, can catch options traders off guard. Even if the stock moves as predicted, the sharp fall in implied volatility can cause the value of your options to plummet, leading to unexpected losses. To avoid falling into this classic trap, it’s crucial to use risk management strategies and pay close attention to expiration dates. By carefully considering how much implied volatility is priced in and planning your trades accordingly, you can potentially capitalize on the earnings IV crush—or at least minimize its impact on your portfolio.Options Pricing and IV Crush
The price of an option is influenced by several factors, but implied volatility is one of the most important—especially around major events like earnings announcements. An option’s price is made up of both intrinsic value and extrinsic value; when a stock makes a large move, the increase in intrinsic value can sometimes offset the effects of IV crush, particularly if the move exceeds expectations. When implied volatility is high, options pricing reflects the market’s expectation of a big move in the stock price. But if implied volatility drops rapidly after the event, options prices can fall sharply, even if the stock price moves in the direction you anticipated. This disconnect is what makes IV crush so tricky for options buyers. You might be right about the stock’s direction, but if you don’t account for the drop in implied volatility, your option’s price could still decrease. On the flip side, options sellers can potentially profit from IV crush by selling options when implied volatility is elevated, then buying them back after the crush at a lower price. To navigate the options market effectively, it’s essential to understand how IV crush impacts options pricing and to use risk-defined strategies and proper position sizing. This approach helps manage risk and increases your chances of potentially profiting from the volatility swings that come with significant events.The Pain: How IV Crush Hurts Retail Traders
You buy SPX option contracts two days before a big earnings release. Everyone’s talking about it, volatility is high, and the options aren’t cheap—but you’re confident. Earnings come out, the stock pops a few points just like you predicted… …but your option loses value Why? Because that earnings announcement was already “priced in.” The market expected a big move. When the news hit, that expectation vanished—and so did the implied volatility that pumped up your option’s premium. As a result, the option’s price drops sharply due to the volatility collapse, even if the stock moves in your favor. This is IV Crush in action. It doesn’t just hurt when you’re wrong. It hurts even when you’re right on direction. And that’s the part most traders don’t see coming. You didn’t lose because of the stock—you lost because the volatility premium collapsed This happens all the time—especially with tech names like TSLA, AAPL, or AMZN where options are expensive and events are frequent. The implied volatility of options is directly tied to the underlying stock or underlying security, so traders must monitor the underlying stock’s price movement and volatility to understand potential IV crush scenarios. Many option traders experience this scenario, making it crucial to understand how implied volatility impacts option pricing.Trade Smart Around IV Crush
💡 Tired of getting crushed by implied volatility? Every week, I send out SPX Iron Condor trade signals designed to profit from elevated IV — not get blindsided by it. These trades are built around high-IV setups, fully defined risk, and automation-ready execution through Interactive Brokers or Tradier. 👉 Join Weekly Premium and start receiving professional-grade trades you can follow manually or automate with just a few clicks.
Risk Management Strategies for IV Crush
Managing risk is essential when trading options around IV crush, as the sudden decrease in implied volatility can quickly erode option values—even if your directional thesis is correct. To navigate this challenge, traders should prioritize risk-defined strategies, such as iron condors or credit spreads. These approaches cap your maximum loss, providing a safety net if the market doesn’t move as expected after a significant event like an earnings announcement or central bank announcement. Proper position sizing is another cornerstone of successful options trading. By limiting the size of each trade relative to your overall portfolio, you can minimize the impact of any single IV crush event and avoid overexposure to increased volatility. Pairing high implied volatility opportunities with other forms of analysis—such as technical or fundamental indicators—can also help you identify the best setups and avoid trading in the wrong market environment. Another effective tactic is to select options contracts with expiration dates that extend beyond the anticipated IV crush event. These options are less sensitive to the immediate drop in implied volatility, giving you more flexibility to manage your position. Alternatively, some traders choose to sell options with elevated implied volatility before a significant event, then buy them back after the event when IV has dropped. While this can be profitable, it’s important to remember that the market doesn’t always react as expected, and there are potential risks if the stock’s price moves sharply or volatility remains elevated. If you want to avoid IV crush altogether, consider steering clear of options trading around major earnings announcements or other significant corporate events. However, this may mean missing out on some high implied volatility opportunities. Instead, use extensive scenario analysis to anticipate a range of possible outcomes and adjust your strategy accordingly. By combining risk-defined strategies, proper position sizing, and careful event selection, you can potentially capitalize on IV crush while keeping your risk in check.How to Trade Around IV Crush
The good news? You don’t have to get burned by IV Crush. In fact, you can build a strategy that works with it—not against it. The simplest way? Stop buying options ahead of major events unless you have strong directional conviction and understand how much IV is priced in. Careful consideration of expiration dates, potential price movements, and implied volatility is essential before entering any trade. If the expected move or volatility drop does not occur before the expiration date, you could face significant losses or be forced to buy back positions at unfavorable prices. Traders should also select strategies that match their risk tolerance to ensure appropriate position sizing and risk management. Instead, consider selling options into high IV environments. This approach involves selling options to take advantage of inflated premiums and the expected drop in implied volatility after the event. This is where strategies like Iron Condors come into play. They allow you to sell both a call spread and a put spread—collecting premium—while keeping your risk fully defined with limited risk. You’re not betting on direction. You’re betting on volatility falling and price staying in a range. After big events, that’s often what happens. The news drops, the volatility collapses, and the price settles down. That’s when IV Crush helps you—not hurts you. Always be aware of the potential risks involved in these strategies, especially during periods of high volatility.How to Profit From IV Crush With Iron Condors
While most retail traders get blindsided by IV Crush, professional traders use it to their advantage—by selling overpriced premium and letting time and volatility work in their favor. That’s exactly what an Iron Condor is built to do. It’s a neutral strategy where you sell both a call spread and a put spread on the same underlying—like SPX—with defined risk on both sides. Typically, both spreads are placed out of the money, with each strike price selected based on the underlying’s current price and the expected move around earnings. When implied volatility is high, the premiums collected are richer. And once the event passes, volatility drops, and the spreads decay in your favor. This is where IV Crush becomes your edge. You’re just betting that the market will stay within a range—and that volatility will fall. The range in question is the expected range, which is calculated using implied volatility and options pricing. And if you set your strikes outside the expected move from the current price, you’re stacking the probabilities in your favor. That’s exactly how I build trades for our Weekly Premium service:- High-IV setups
- SPX-focused
- Defined risk
- Built for automation
Tools to Track IV (and Spot Crush Setups)
If you want to avoid—or even profit from IV Crush—you need to know when implied volatility is high. Traders often look for IV spikes as signals that the market is entering a period of elevated volatility, which can present unique opportunities. These high implied volatility opportunities are attractive because they allow for strategies that maximize gains while managing risk. The tools below help you track IV, spot setups, and make informed decisions when trading options around IV Crush events. Earnings season is an ideal time for traders to review and refine their IV crush trading strategies, as many companies report earnings and IV patterns are more pronounced.✅ IV Rank and IV Percentile
- IV Rank: Shows where current IV stands compared to the last 52 weeks
- IV Percentile: Tells you what % of time IV was lower
- Look for IV Rank above 50% and IV Percentile above 60% for premium selling
🛠️ Platforms That Help
- ThinkOrSwim – Excellent IV data (free with TD Ameritrade)
- Tastyworks – Shows expected move and IV Rank visually
- Market Chameleon – Great for earnings-based IV Crush tracking
Example: IV Crush on SPX After Earnings Announcement
Let’s look at a hypothetical scenario: It’s the week of a Federal Reserve rate decision. SPX implied volatility is elevated—traders are bracing for fireworks. Options are expensive, with IV Rank sitting around 75% due to the high expected volatility priced in ahead of the event. The Fed delivers exactly what was expected, matching the market’s expectation. No surprise. SPX barely moves—but something else does: the actual move in SPX is much smaller than what was implied by the options market. Implied volatility collapses. This decreasing IV, often called IV crush, occurs as the uncertainty is resolved and the event passes. A trader who bought a straddle might lose money even if the price moved slightly. If the stock’s price does not move as much as expected, the resulting IV drops can lead to losses for option buyers. Why? Because both call and put premiums were bloated by high IV, and that extra value vanished as the expected volatility dropped sharply after the announcement. Meanwhile, a trader who sold an Iron Condor (with strikes outside the expected move) likely saw quick profit as premium decayed and volatility deflated. This is the kind of setup I build into my Weekly Premium signals: high-IV event, defined risk, and favorable odds using the math of volatility collapse.FAQs About IV Crush for Beginners
✅ What is IV Crush in options trading?
IV Crush happens when implied volatility drops sharply—usually after a known event—causing option prices to fall, even if the stock moves in your favor.✅ When does IV Crush usually happen?
It typically occurs right after earnings reports, Fed meetings, or economic data releases—any event that the market has been pricing in.✅ Does IV Crush affect both calls and puts?
Yes. IV is embedded in both call and put prices. So when it drops, both sides can lose value—even if you’re on the right side of the move.✅ How do I avoid getting hurt by IV Crush?
Avoid buying options right before major events. If you must trade them, keep position size small or use spreads to reduce exposure to volatility shifts.✅ What’s the best strategy to profit from IV Crush?
Iron Condors and other premium-selling strategies work best. They allow you to collect premium when IV is high—and benefit as it collapses post-event.Conclusion and Best Practices
IV crush is a powerful force in options trading, capable of dramatically impacting options prices in the wake of significant events. Understanding how and why implied volatility drops after earnings announcements or other major events is crucial for any trader looking to navigate the options market successfully. To manage the risks and potentially profit from IV crush, it’s essential to employ robust risk management strategies. Using risk-defined strategies like iron condors, maintaining proper position sizing, and conducting extensive scenario analysis can help you limit losses and make more informed decisions. Always be mindful of the market’s expectation of future volatility, and adjust your approach based on the underlying stock’s price movement and the timing of significant corporate events. Here are some best practices for trading options around IV crush:- Evaluate risks and rewards: Carefully assess each trade’s potential upside and downside, especially around significant events.
- Use risk-defined strategies: Limit your potential losses by choosing strategies like iron condors or credit spreads.
- Size positions appropriately: Keep your trade sizes manageable to avoid outsized losses from a single event.
- Combine indicators: Pair high implied volatility opportunities with technical or fundamental analysis for better decision-making.
- Be selective with timing: If possible, avoid trading options right before major earnings announcements or central bank announcements.
- Run scenario analysis: Anticipate a range of possible outcomes and plan your trades accordingly.
- Stay informed: Keep up with market news and analysis to spot upcoming events that could trigger IV crush.
Conclusion: Mastering IV Crush Starts With Strategy
If you’ve ever watched an option lose value after the stock moved in your favor, now you know why: IV Crush. It’s not a bug in the system—it’s how options pricing works. When the market anticipates a big event, implied volatility rises. Once the event passes, that inflated value disappears—often instantly. For most traders, this is a costly surprise. But for those who understand it, IV Crush becomes an edge. Instead of buying expensive options into high-IV setups, I prefer to sell defined-risk premium—specifically through SPX Iron Condors—designed to profit when volatility falls. It’s how I’ve traded for years, and it’s exactly how I structure the trades in my Weekly Premium service.👉 Don’t get crushed—profit from volatility instead. 🔗 Join Weekly Premium Today →
