Implied Volatility (IV) Crush after
Praveen Dubey (SEBI Registered RA)
SP RESEARCHVIA PVT. LTD. (INH000015808)
Exploiting Earnings Season Volatility Drops
Before earnings reports, options pricing rises due to uncertainty, inflating implied volatility. Once the news is out, IV collapses, resulting in an 'IV crush'. The derivatives desk at SP RESEARCHVIA PVT. LTD. details how to trade this phenomenon.
How do you protect option positions from IV crush?
Avoid holding naked long calls or puts through earnings. Instead, utilize net-seller strategies such as Short Iron Condors or Calendar Spreads to benefit from the post-announcement volatility drop.
Managing Execution Risks
Position sizing and stop-loss rules are critical, as unexpected earnings beats or misses can lead to massive stock price moves that override the benefits of the IV contraction.
Written by Praveen Dubey
Chief Research Analyst | SEBI Reg: INH000015808
Statutory Warning & Risk Disclaimer: Investment in securities market is subject to market risks. Read all related documents carefully before investing. Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Content provided on this blog is for informational and educational purposes only.