IV Crush Calculator

IV crush (implied volatility crush) is the rapid decrease in an option's implied volatility after a significant market event, most commonly after earnings announcements. Before earnings, options are priced with elevated IV due to uncertainty. Once earnings are announced and uncertainty is removed, IV drops sharply—often 30-60%—causing option values to decline even if the stock moves in your favor. This is why traders can lose money on earnings plays despite being directionally correct.

IV drops vary by company and sector. Big Tech stocks (AAPL, MSFT, GOOGL) typically see 20-35% IV drops post-earnings. Standard S&P 500 companies average 35-45% drops. High-volatility stocks like meme stocks, biotech, and small-caps can see 50-70% IV crush. The exact amount depends on the stock's typical volatility, market conditions, and how predictable earnings tend to be. Using historical earnings data can help estimate the expected IV drop for a specific stock.

Yes, but the stock must move significantly beyond the implied move priced into the straddle. The market-implied move (straddle price ÷ strike) represents what the options market expects. If the stock moves more than this amount, your intrinsic value gain can overcome the IV crush loss. For example, if the implied move is ±8% but the stock moves ±12%, a long straddle can still profit despite IV dropping 40-50%. The key is the actual move exceeding the priced-in expectation.

It depends on your thesis and risk tolerance. Hold through earnings if: (1) you expect a move larger than the market-implied move, (2) you're willing to accept binary risk, (3) IV hasn't already run up excessively. Sell before earnings if: (1) you've already captured IV expansion and are at a profit, (2) the current premium reflects an unrealistic move, (3) you want to avoid binary event risk. Many traders use a hybrid approach: close half before earnings, hold half through.

Time decay (theta) is the gradual, predictable erosion of option value as expiration approaches—it happens every day regardless of market events. IV crush is a sudden, event-driven drop in implied volatility that occurs after specific catalysts (earnings, FDA decisions, elections). Both reduce extrinsic value, but IV crush is much faster and more dramatic. A 30-DTE option might lose $50 to theta over a week, but could lose $200-500 to IV crush overnight after earnings.

IV crush impact is calculated by comparing option values at two different IV levels while holding other variables constant. Method: (1) Calculate option value with current IV using Black-Scholes, (2) Calculate option value with post-earnings IV (typically 30-60% lower), (3) The difference is the IV crush cost. Our calculator automates this by pricing each leg of the straddle before and after the IV drop, showing you the isolated impact of volatility collapse separate from price movement and time decay.

Strategies to mitigate IV crush: (1) Sell options before the event to capture inflated premiums without event risk, (2) Use vertical spreads instead of naked long options—they benefit from collapsing IV on the short leg, (3) Trade the stock directly if you have a directional view, (4) Only buy options when IV is low relative to historical levels, (5) Size positions appropriately knowing most earnings trades lose money. Short sellers benefit from IV crush, which is why selling premium (covered calls, credit spreads) around earnings can be profitable for experienced traders.

Options lose value despite favorable stock movement when IV crush exceeds the intrinsic value gained from the price move. For example: You buy a $100 call for $5 with 80% IV. Stock jumps to $105 (+5%), giving you $5 intrinsic. But if IV drops from 80% to 40% post-earnings, the extrinsic value collapses from ~$3 to ~$0.50. Your option is now worth ~$5.50 ($5 intrinsic + $0.50 extrinsic) vs your $5 cost—minimal gain despite being directionally correct. This is the cruel math of earnings plays.

The market-implied move is the price swing that options traders collectively expect based on the straddle price. It's calculated as: (ATM straddle price ÷ strike price) × 100. For example, if a $150 strike straddle costs $12, the implied move is ±8% ($12 ÷ $150). This represents the breakeven move needed at expiration. Historically, stocks exceed this move about 30-40% of the time, meaning the market tends to slightly overestimate actual earnings moves. Comparing historical earnings moves to current implied moves helps identify mispriced events.

Absolutely. Short option sellers profit from IV crush. Strategies include: (1) Short straddles/strangles—collect inflated premiums before earnings, profit as IV collapses if the stock doesn't move much, (2) Iron condors—defined risk version of short strangles, (3) Covered calls—if you own the stock, sell calls at elevated IV before earnings, (4) Calendar spreads—sell near-term options (high IV) and buy longer-term options (lower IV). These are advanced strategies requiring margin, discipline, and risk management. The key is selling before the event and buying back after IV collapses.