How To Avoid IV Crush On Earning
Avoiding IV crush on earnings is all about understanding how implied volatility behaves around events and strategically managing your option positions. Here’s a detailed guide to help you minimize losses (or even profit) when trading around earnings.
🎯 What Is IV Crush?
IV crush happens after earnings are announced, when the implied volatility (IV) that was inflated beforehand drops sharply, causing option premiums to fall—even if the stock moves in your favor.
đźš« How to Avoid IV Crush on Earnings
1. Don’t Hold Long Options Through Earnings
If you buy a call or put before earnings, you’re paying a premium inflated by high IV. Once earnings are out, that IV drops—resulting in a loss from volatility decay, even if you’re right on direction.
âś… Solution:
Sell or close your options before the earnings report. This way, you profit from the pre-earnings IV run-up and avoid the crush.
2. Use Debit Spreads (Vertical Spreads)
Instead of buying a naked call or put:
âś… Use a bull call spread or bear put spread:
- Buy one option and sell another at a nearby strike.
- The short leg offsets the IV drop of the long leg.
- You reduce your exposure to IV crush.
đź“Ś Example:
- Buy AAPL 180 call
- Sell AAPL 185 call
This costs less and reduces your IV risk.
3. Trade Post-Earnings (Not Pre-Earnings)
Wait until after the earnings announcement, when IV has dropped, and then buy options if you expect movement.
âś… Benefit:
- IV is cheaper, so option prices are lower
- Directional plays (if expected) can be more cost-effective
4. Sell Premium Instead of Buying It
IV crush can work in your favor if you’re selling options before earnings.
âś… Use strategies like:
- Iron condor
- Short straddle/strangle (higher risk)
- Vertical credit spreads
These strategies benefit when:
- The stock doesn’t move much
- IV collapses after earnings
⚠️ Make sure your max risk is defined, especially on straddles/strangles.
5. Check IV Rank or Percentile
Before entering any trade, look at IV Rank (0–100 scale):
- High IV Rank (>50%) = options are expensive → good time to sell
- Low IV Rank (<30%) = options are cheap → better for buying
đź“Š Use tools like:
- Thinkorswim
- OptionsStrat
- TradingView
- Barchart or Market Chameleon
6. Use Earnings-Based Option Strategies
If you want to trade earnings, consider strategies designed for this scenario:
| Strategy | When to Use | IV Crush Risk |
|---|---|---|
| Iron Condor | Expect low movement | Benefits from IV crush |
| Straddle/Strangle Sell | Neutral or low movement | Benefits from IV crush (risky) |
| Butterfly Spread | Expect minimal movement | Limited risk, profits if stock lands near strike |
| Calendar Spread | Neutral near-term, directional later | Can benefit from IV skew |
🧾 Recap: How to Avoid IV Crush on Earnings
| Tip | What It Does |
|---|---|
| Don’t hold naked calls/puts through earnings | Avoids buying high-IV options |
| Use debit spreads | Reduces Vega (IV exposure) |
| Sell options when IV is high | Profits from IV crush |
| Trade post-earnings | Buy options after IV drops |
| Check IV Rank/Percentile | Helps you decide whether to buy or sell |
| Use defined-risk strategies | Manages risk while leveraging volatility |