IV crush (implied volatility crush) is the rapid collapse in a stock's implied volatility immediately after a scheduled market event — most often an earnings announcement — that removes the uncertainty premium embedded in options prices. Even when a trader is directionally correct, IV crush can cause long options positions to lose value because the drop in volatility destroys more value than the directional move creates.

Why IV Crush Happens

Implied volatility is the market's forward estimate of how much a stock might move. Before a known binary event — earnings, a Fed decision, an FDA ruling — options buyers bid up premiums to reflect the possibility of a large surprise. This extra cost is the event volatility premium.

Once the event passes, uncertainty is resolved. The market no longer needs to price in a surprise, so options are immediately repriced lower. The result is a sharp, near-instantaneous drop in IV — the crush. The crush is not a malfunction; it is the market correctly removing a premium that only existed while uncertainty was unresolved.

When IV Crush Occurs

IV crush is most predictable around scheduled events where uncertainty resolves on a fixed date:

• Earnings announcements — the most common source. Large-cap front-month IV typically collapses 30–60% the morning after reporting.
• Federal Reserve meetings (FOMC) — index options (SPX, SPY, QQQ) carry elevated IV into Fed days; IV often drops sharply as rate-path uncertainty narrows.
• OPEX — near-term IV compresses as gamma risk evaporates around monthly and quarterly expirations.
• Macro data releases — CPI, NFP, and FOMC minutes can cause localized crush in index and rate-sensitive names.
• FDA / clinical trial decisions — common in biotech; can produce extreme IV crush or expansion if the outcome surprises.

How Much IV Typically Drops

The magnitude depends on how elevated the pre-event premium was and how large the actual move was relative to expectations.

For large-cap equities, front-month IV commonly drops 30–60% after earnings. A stock with IV at 80% heading in might settle back to 30–35% the next morning — even after a 5–10% move.

Concrete example: a $100 stock with an $8 ATM straddle implies an 8% earnings move. If the stock moves 5% but IV collapses from 80% to 32%, the straddle might be worth $4–5 the next day. The directional buyer was right and still lost — because the volatility contraction exceeded the delta gain.

How IV Crush Affects Options P&L

When IV collapses, vega — the sensitivity of an option's price to changes in implied volatility — works against long options holders. A concrete example:

• Long call, delta = 0.45, vega = 0.15
• Stock moves up 5% ($5 on a $100 stock) → delta gain ≈ +$2.25
• IV drops 40 points (from 80 to 40) → vega loss ≈ −$6.00
• Net P&L ≈ −$3.75

The trader was right on direction and still lost. The directional gain must exceed the vega loss for the trade to be profitable — which requires either an unusually large stock move or low pre-event IV. Theta compounds the damage: when IV collapses, vega loss and time-value evaporation hit simultaneously.

IV Crush by Strategy: Winners and Losers

Strategies that benefit from IV crush

• Short straddle — short ATM call + put. Maximum benefit when the stock stays near the strike.
• Short strangle — short OTM call + put. Wider breakeven, still profits from post-event IV collapse.
• Iron condor — defined-risk strangle. Caps both profit and loss. Popular for traders who want to sell the event premium with limited downside.
• Credit spreads — bull put or bear call spread. Collects elevated premium, profits if IV compresses and the stock stays within range.

Strategies that are hurt by IV crush

• Long calls or long puts — directionally exposed to the vega loss described above.
• Long straddle / long strangle — needs a move large enough to overcome vega loss and time premium paid.
• Debit spreads — partially hedged, but net vega is still positive; can lose on a modest IV collapse.
• Long calendar spreads — front-month IV collapses faster than back-month after the event, which typically hurts the calendar.

IV Rank and IV Percentile: Identifying Elevated IV Before the Crush

Before selling premium into an event, confirm that IV is actually elevated. Two metrics help:

IV Rank (IVR) shows where current IV sits within the stock's 52-week high-low range. An IVR of 80 means IV is in the top 20% of its annual range — a reasonable signal that significant uncertainty is priced in.

IV Percentile shows what percentage of days over the past year had lower IV than today. Above 75–80 suggests IV is unusually elevated and may compress post-event.

Neither metric guarantees a crush. IV can stay elevated or expand if ongoing uncertainty persists — for example, after a guidance withdrawal or macro shock.

How SpotGamma's Volatility Dashboard Helps

SpotGamma's Volatility Dashboard gives options traders a structured view of the IV landscape before and after events, with three tools directly relevant to IV crush analysis:

Term Structure

The term structure tab plots implied volatility across expiration dates. Before an earnings event, the front-month expiry typically shows a pronounced "kink" — a spike in IV relative to back-month expirations. Traders can measure exactly how much premium is priced into the near-term contract versus the 60- or 90-day expiry, making it easier to decide whether the premium justifies the event risk.

Fixed Strike Matrix

The fixed strike matrix displays IV across strikes and expiration dates simultaneously. This identifies where IV is most concentrated — whether the crush is priced broadly or focused at ATM levels — which is directly useful for selecting strikes on iron condors and strangles.

Skew Analysis

The skew view shows IV differences between put and call strikes. Pre-event skew often steepens as demand for downside protection rises; post-crush it frequently normalizes. This helps traders assess whether a post-event IV collapse is uniform or asymmetric across the chain.

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Frequently Asked Questions

What is IV crush in simple terms?

IV crush is when implied volatility drops sharply after a scheduled event resolves. Options prices fall because the uncertainty premium no longer exists. It most commonly occurs the morning after a company reports earnings.

How do I know if IV crush will happen?

IV crush is predictable after any scheduled binary event — the question is magnitude. Check IV Rank: an IVR above 75 means volatility is historically elevated and compression is likely post-event. SpotGamma's term structure view quantifies the near-term premium relative to back months; the size of that kink is the market's estimate of the crush.

When does IV crush happen after earnings?

IV crush begins the moment pre-market opens after earnings, or immediately after the announcement if it occurs during the session. For weekly options, most of the crush happens within the first trading hour. Monthly options typically reset within one to two sessions.

Can you profit from IV crush?

Yes. Short premium strategies — short straddles, short strangles, iron condors, and credit spreads — collect the elevated pre-event premium and profit from the post-event collapse. The primary risk is an outsized move that exceeds premium collected. Defined-risk structures like iron condors cap the maximum loss.

Does IV crush affect all options equally?

No. Front-month options carry the most event premium and are hit hardest. Longer-dated options (60–90 days out) carry less event-specific premium and drop less. This is why the term structure kink flattens after an event — the front-month IV comes back down toward back-month levels.

Is IV crush the same as vega risk?

Closely related. IV crush is the event; vega risk is the mechanism by which it damages long positions. High positive vega (long straddle) = maximum exposure. High negative vega (short strangle) = benefits from the crush.

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SpotGamma's Volatility Dashboard shows IV term structure in real time, helping you spot elevated IV before events and identify potential crush setups. Volatility Dashboard →

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This article is for educational purposes only and does not constitute financial advice.