IV Crush Play

IV crush is highly reliable but not 100% guaranteed. In normal circumstances, IV drops 20-50% after earnings. However, if broader market uncertainty persists (crisis, macro events), IV may stay elevated or even increase. Typically 90%+ of the time, IV crushes as expected.

Yes, if the stock moves less than the expected move. IV crush provides a cushion - your vega profit can exceed your delta loss if the move is modest. If the stock moves more than expected, you'll likely have a loss despite IV crush.

IV crush plays are not about direction - they're about magnitude. You don't care which way the stock goes; you care how much it moves. Stay within expected move = profit (usually). Exceed expected move = loss (usually). Direction only matters if you have a directional structure.

No! Close quickly after the event - usually morning after. IV crush is immediate; the benefit is captured right away. Holding longer adds gamma risk (you're now close to expiration) without additional IV crush benefit. Take 50-75% profit and move on.

If the event is postponed, IV will stay elevated (uncertainty not removed). You can: (1) Hold and wait for new date, (2) Close and take small profit/loss from theta, (3) Roll to new expiration. Monitor announcement closely.

Look at current IV vs 52-week range (IV Rank). Also compare expected move to actual historical earnings moves over past 8-12 quarters. If expected move > average historical move, options are relatively expensive and IV crush opportunity is better.

Iron condor for most traders. It provides defined risk - you know max loss if stock gaps huge. Short straddle collects more premium but has unlimited risk. Only use naked strategies if you're very experienced and can handle the stress of potentially large losses.

Conservative: 1.5× expected move (higher probability). Standard: 1.0× expected move (balanced). Aggressive: 0.7× expected move (more premium, lower probability). If expected move is S$3, standard would be strikes S$3 away from current price each side.

Find out WHY IV is elevated. If it's due to another specific event that will resolve, you can play IV crush around that event. If it's due to ongoing uncertainty (crisis, litigation), IV may not crush until that uncertainty resolves. Don't assume IV crush without understanding the cause.

Avoid it. Wide bid-ask spreads eat into profits significantly. IV crush profit might be S$0.50, but if bid-ask is S$0.30, you lose most of your profit to slippage. Stick to liquid names with tight options spreads.

Institutions trade IV crush across hundreds of events per season. They: (1) Screen for elevated IV premium vs historical, (2) Size uniformly, (3) Use defined risk structures, (4) Accept that losses will occur but edge accumulates over many events, (5) Track performance by sector and stock characteristics.

Standalone IV crush strategies often have Sharpe ratios of 0.5-1.0. High win rate but occasional large losses create modest risk-adjusted returns. Better performance comes from: selecting only high-premium events, proper sizing, and avoiding events during macro uncertainty.

Vanna (∂Delta/∂IV) causes delta to change when IV changes. Post-crush, OTM options become more OTM in delta terms (delta decreases toward zero). ITM options become more ITM. This can change your directional exposure after the event, requiring attention if stock has moved.

Iron condor: When you want direction-neutral, defined risk, and don't care where stock ends up within range. Calendar: When you want to benefit from term structure crush, have a view on where stock will be, and want some long vol exposure remaining. Calendar requires stock near strike; iron condor just needs stock in range.

Options: (1) Keep aggregate delta near zero, (2) Hold some long OTM options as tail hedge, (3) Size each position small enough that total portfolio can absorb multiple losses, (4) Stagger entries to avoid all positions being vulnerable to same macro shock. VIX exposure (if available) provides portfolio-level hedge.