What is an IV crush in options?

An IV crush is the sharp decrease in implied volatility that occurs after a major event, such as earnings, causing the extrinsic value of options to drop rapidly.

How do you profit from IV crush?

Traders often profit from IV crush by selling options (credit spreads or iron condors) before an event to capture the collapse in premium, or by using spreads to mitigate the impact of Vega on long positions.

What is IV Crush? How Volatility Impacts Options After Earnings

Quick Answer: IV Crush (Implied Volatility Crush) is the rapid decline in an option’s implied volatility that typically occurs immediately after a major catalyst, such as an earnings announcement. Because IV is a key component of an option’s price, a significant “crush” can cause the option value to drop even if the underlying stock moves in the trader’s favor.

The Anatomy of an IV Crush

Implied Volatility (IV) represents the market’s expectation of future price movement. Leading up to a major event like earnings, uncertainty is at its peak. This drives up the demand for options, inflating the “extrinsic value” (time premium) of the contracts.

The moment the news is released, the uncertainty is resolved. The “unknown” becomes “known,” and the demand for protection collapses. This is IV Crush.

Why Does IV Crush Kill Profitable Trades?

Many retail traders buy “out of the money” (OTM) calls or puts before earnings, expecting a massive move. Even if the stock moves 5% in their direction, they may still lose money. This happens because the gain from the price move (Delta) is offset by the massive loss in extrinsic value as IV collapses (Vega).

Key Factors in IV Crush Intensity:

Event Magnitude: Quarterly earnings, FDA approvals, and FOMC meetings are the primary triggers.
IV Percentile: If IV was already at historical highs (high IV Percentile) before the event, the subsequent crush will be more severe.
Time to Expiration: Near-term options (like 0DTE or weeklys) experience the most violent IV crushes.

How to Avoid Getting “Crushed”

Professional traders use SpotGamma metrics to determine if the “Expected Move” is already priced in. By comparing the implied move to historical volatility and current gamma levels, you can identify when options are too expensive to buy.

Strategies to Mitigate Risk:

Vertical Spreads: Selling an option against the one you buy can help offset the negative impact of Vega.
Calendar Spreads: Taking advantage of the different crush rates between near-term and long-term IV.
Trading the Post-Earnings Drift: Waiting for the IV crush to settle before entering a directional position at a “fairer” price.

Mastering Volatility with SpotGamma

Understanding IV Crush is the first step toward volatility-neutral trading. By using SpotGamma’s Equity Hub and TRACE tools, you can see exactly where the market is pricing in risk and where the real opportunity lies after the dust settles.

Stop guessing on earnings volatility. Join SpotGamma today and access institutional-grade volatility data.