IV crush
The rapid drop in IV after an expected event, typically right after earnings. A long option can lose value even though the stock moves in the right direction.
An example with numbers
A fictional stock trades at $100 one week before earnings. Because a big move is expected, the at-the-money call with 7 days left is priced at an IV of 80 %, which gives a premium of about $4.45.
After the report the stock rises 3 % to $103. Good news, right? But the uncertainty is gone and IV drops to 35 %. With 6 days left, the same call is now worth about $3.75. The stock moved in your direction and the call still lost around 16 %.
Why it happens
Before an event, option sellers demand extra premium for the risk of a gap. That extra shows up as high implied volatility. Once the event is over, the risk is gone and IV falls back, often within one trading session. A long option needs a move larger than the expected move priced in before the event just to break even.
How to avoid it as a buyer
- Check the earnings date before every trade and know whether it falls inside your holding period.
- Prefer setups where the IV rank is low, so there is little extra premium that can collapse.
- If you hold through earnings, do it on purpose and with a smaller position, not by accident.
Frequently asked questions
Does IV crush only happen after earnings?
Earnings are the most common case, but any expected event with an uncertain outcome can cause it: product launches, court rulings, drug approvals or central bank decisions.
How does the screener handle IV crush risk?
Earnings inside the holding window cost points or block a short-term setup entirely, and an expensive IV rank caps long options at a score of 3.
See it in the screener
The live demo shows every term with example data, right next to the score and its reasons.