How To Avoid IV Crush

IV Crush (Implied Volatility Crush) is a sharp drop in implied volatility after a major event—most commonly earnings announcements or major product releases—that significantly affects the price of options. This leads to a sudden drop in option premiums, often causing losses even if the price moves in the expected direction.

Here’s how to avoid or minimize the impact of IV Crush:

🧠 1. Understand What Causes IV Crush

IV rises before major events due to uncertainty. Once the event passes and uncertainty is gone, IV drops sharply. This is most common:

Before earnings reports
Before FDA approvals, court rulings, or major product launches
In M&A rumors or macroeconomic reports

🚫 2. Avoid Holding Long Options Through High-Impact Events

If you’re buying calls or puts only for speculation, avoid holding them through the event that will likely cause the IV crush. Consider:

Closing the position before earnings
Selling options instead (more on this below)

💼 3. Use Option Spreads Instead of Naked Long Options

Spreads help reduce your exposure to IV changes.

Vertical spreads (e.g., bull call spread or bear put spread): Buy one option and sell another at a different strike. The sold leg helps offset IV crush.
Calendar spreads: These can benefit from differences in IV between near- and far-dated options.
Iron condors / butterflies: These benefit from IV dropping, so they can actually profit from IV crush.

🔍 4. Check IV Rank / Percentile Before Entering Trades

Use IV Rank or IV Percentile to gauge whether IV is high relative to the past:

High IV Rank (e.g., > 50%): Consider selling options or using spreads
Low IV Rank: Buying options may be more reasonable

💡 5. Sell Premium Into the Event

If IV is inflated, you can take advantage by selling options before the event. Strategies include:

Short straddles or strangles (only for experienced traders with high risk tolerance)
Iron condors or butterflies for defined risk
Covered calls or cash-secured puts as lower-risk income plays

These strategies can benefit from IV collapsing.

📊 6. Use Historical vs. Implied Volatility Comparison

Compare implied volatility with historical volatility. If IV is significantly higher than historical, there’s a good chance it will drop after the event.

🧠 Example:

Say a stock trades at $100, and has earnings next week. IV is very high. You buy a $100 call for $5.

Earnings come out, stock jumps to $105
But IV drops significantly and the option is now worth only $3.50
You were right on direction but still lost money

✅ Summary: How to Avoid IV Crush

Strategy	Effect
Avoid long options into earnings	Prevents IV crush losses
Use spreads	Reduces IV exposure
Sell options before events	Take advantage of high IV
Check IV rank/percentile	Understand IV context
Use defined-risk strategies	Control risk if selling options