The Silent Killer: IV Crush
Why buying options before earnings is a loser's game, and how to position yourself on the winning side.
The Earnings Trap
Have you ever bought an option before earnings, watched the stock move in your direction, and still lost money?
This is IV Crush. Implied Volatility spikes before a "known event" like earnings because uncertainty is high. Once the news is out, uncertainty vanishes, and IV collapses instantly—taking the option's value with it.
Premium is expensive
Premium collapses
How to Trade Around Earnings
Buying single options (Calls or Puts) right before earnings is strictly gambling. You need a massive move just to break even against the IV crush.
Professional sellers LOVE high IV. They sell options when premiums are expensive (before earnings) and buy them back cheap after the crush.
Types of Volatility Events
Known Events (Earnings)
We know exactly when these will happen. Traders bid up prices in anticipation.
- Quarterly Earnings
- Fed Meetings
- Product Launches
Unknown Events (News)
Sudden shocks. IV spikes instantly due to panic, but may settle down more slowly.
- Geopolitical conflicts
- Surprise lawsuits
- Scandals