IV Crush Play

Both profit from volatility contraction, but IV crush plays specifically target the predictable IV collapse after known events (earnings). Regular short vol is more about general premium collection over time. IV crush plays are more tactical and short-term.

Yes, if the move is smaller than expected. The straddle price implies an expected move. If actual move < expected, the seller profits. IV crush provides 'cushion' - you can withstand some movement and still win.

This is rare but can happen if there's additional uncertainty (ongoing investigation, incomplete guidance). In this case, you may not get the expected vega profit. Have an exit plan - if IV doesn't crush within a day, reassess.

Weekly options closest to the event have the most 'event premium' embedded. When the event passes, this premium disappears faster in near-term options. Using the first expiration after the event maximizes your vega exposure to the crush.

A short straddle is one way to implement an IV crush play, but it has unlimited risk. Most traders use defined-risk structures like iron condors or iron butterflies to capture IV crush with capped losses.

Look at IV Rank (should be >70) or compare current IV to historical pre-earnings IV. If current IV is at or above typical pre-earnings levels, there's crush potential. Also check that near-term IV exceeds far-term IV.

After. The IV crush happens when the event occurs. Exiting before means you miss the crush. Enter before the event, hold through it, exit the morning after when IV has collapsed.

Vega Profit = Position Vega × IV Drop. If your position vega is -$30 and IV drops 20 points, vega profit is $30 × 20 = $600. This is offset by any gamma loss from stock movement.

With defined risk (iron condor), your loss is capped at max loss. With naked positions, losses continue beyond the strikes. This is why sizing and defined risk are critical - you can't control overnight gaps.

You need: (1) Elevated IV (not all stocks have high event IV), (2) Liquid options, (3) Sufficient historical data to analyze. Major stocks like Canadian banks work well. Illiquid or low-IV stocks don't offer good setups.

Compare term structure: if 1-week IV = 45% and 1-month IV = 30%, the event premium is roughly 15%. Alternatively, compare current IV to average post-earnings IV historically. The difference is the event premium.

If puts are significantly richer (steep skew), consider selling more put premium or using put-heavy structures. Skew often flattens into earnings, so selling rich puts may offer extra edge from skew normalization.

Limit single event to 2-3% max loss. Limit correlated events (same sector) to 5%. Total event exposure max 10-15%. Keep reserves for non-event strategies. Diversify across sectors and dates.

Need historical option prices (expensive) or simulate using historical IV and stock prices. Track: pre-event IV, post-event IV, stock move, theoretical P&L. Calculate win rate, average win/loss, max drawdown.

When uncertainty remains: (1) Incomplete guidance, (2) Regulatory investigation pending, (3) Upcoming secondary event, (4) Macro uncertainty (market-wide fear). In these cases, IV may stay elevated despite the event passing.