IV Crush options strategies

Hello friends Lets understand IV cruse how this can help you to Decode option trading set ups 

IV Crush options strategies focus on profiting from the sharp drop in option prices (premium) after a big event (like earnings) when uncertainty fades, by selling volatility through strategies like Iron Condors, Short Straddles/Strangles, or Butterflies, aiming to collect premium as Implied Volatility (IV) collapses, making them ideal for high-IV situations pre-event, rather than buying options which lose value despite direction. 

Strategies to Profit from IV Crush (Selling Volatility)

These strategies are best before the event, expecting IV to drop:

• Iron Condor/Iron Butterfly: Sell OTM calls/puts (Condor) or ATM calls/puts (Butterfly) to collect premium, profiting if the stock stays within a range.
• Short Straddle/Strangle: Sell both calls and puts (same strike for Straddle, different for Strangle) to profit from time decay and IV drop if the stock stays stable.
• Call/Put Spreads (Credit Spreads): Sell a closer option and buy a further OTM option to limit risk, benefiting from time decay and IV crush.
• Calendar Spreads: Sell a near-term option and buy a longer-term option, profiting as time decay hits the short-term option faster and IV drops. 

Strategies to Avoid or Adapt for IV Crush (Buying Volatility)

Buying options (long calls/puts) is risky because IV crush erodes their value:

• Avoid buying naked options right before earnings: Even if you predict direction, the IV crush can cause losses.
• For Directional Bets: If you must buy, consider buying longer-dated options (less sensitive to immediate IV) or using spreads to reduce cost/risk, but be aware the event must produce a larger move than implied to overcome the crush. 

Key Takeaways

• IV Crush = Option Price Drop: IV is market's expectation of future movement; after the event, expectation drops, so option price drops.
• High IV = Expensive Options: Good for selling, bad for buying.
• Low IV = Cheaper Options: Good for buying, bad for selling.
• When to Use: Sell into high IV (pre-earnings); buy into low IV (post-event, if stable). 

Example: A stock's IV spikes to 80% before earnings (expensive options). You sell an Iron Condor. Earnings come out, IV drops to 30% (cheap options). Even if the stock moves a little, the premium you collected from selling high-IV options shrinks, making you profit. 

 

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