IV Crush

What Is IV Crush?

IV crush is the sharp decline in implied volatility that occurs after a binary event—most commonly earnings—is resolved. Leading up to earnings, IV rises as uncertainty builds. Option sellers demand higher premiums for bearing the unknown outcome. When the event passes, demand for options drops suddenly, and IV collapses—often by 30-60% overnight.

Because option prices are directly tied to implied volatility through vega, this compression eats into option gains or amplifies losses even when the underlying moves in the anticipated direction. Premium sellers intentionally capture IV crush. Buyers often face unexpected losses despite correct directional calls.

Why It Matters for Options Traders

IV crush is one of the most common sources of confusion and unexpected losses for newer options traders. The scenario plays out repeatedly: a trader buys calls before earnings, the company reports a strong quarter, the stock rises 5% — and the calls still lose value. How? IV dropped 40% after earnings were announced, and the vega loss overwhelmed the delta gain from the stock’s move.

This dynamic is why experienced traders are cautious about buying single-leg options into earnings. The trade structure needs to account for IV compression, not just direction. Spreads partially solve this: buying a call spread instead of a naked call limits vega exposure because you’re both buying and selling implied volatility at different strikes.

On the other side, traders who sell premium before earnings (iron condors, strangles, straddles) are intentionally capturing IV crush. They collect elevated premium when IV is high and profit as IV collapses after the event — as long as the stock doesn’t move beyond their expected range.

Quantifying the Risk

IV crush magnitude varies by stock and event type. Stocks with consistent earnings surprises tend to see smaller IV crush because the market has learned to price in larger moves. You can estimate anticipated crush by comparing current IV to typical post-earnings IV levels for that security.

Tools like IV Rank and IV Percentile help contextualize whether current IV is elevated relative to history — a prerequisite for understanding whether crush risk is significant. If IV is already low before earnings, the crush will be smaller; if IV has expanded dramatically in anticipation, expect a sharp collapse.