What happens when IV crashes after earnings or major events and how to trade it

Trading
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Earnings season is back and excitement is building up. Over the next few weeks, companies will start announcing results. For traders, this is one of the busiest times. Stocks can move sharply after results, sometimes up or down 5 to 10 percent in a single day.

It’s tempting to buy options before results and hope to catch the move. You pick a stock, buy a call, wait for the numbers, the company reports good results, the stock opens higher… and your option premium falls. The direction was right, P&L is red. That drop is often IV crush.

What is IV crush?
IV (implied volatility) is how much movement the market expects ahead. Before big events like earnings, RBI policy, or the Budget, expectations are high, so IV goes up and options get expensive. After the event, uncertainty is gone, IV drops, and option prices can fall even if the stock moves your way. That fast drop in IV is the crush.

Quick example:

  • Stock at ₹1,000 a day before results.

  • IV before results: 45%

  • ATM call: ₹40

After results the stock is up 2%, but IV falls to 25%. The same call is now ₹28. You got direction right, but the IV drop ate the gains.

How to spot IV build-up before events

  1. Check the IV column in the option chain. If IV across calls and puts has been rising into the date, the event is priced in.

  2. Compare today’s IV with the last few sessions. A clear jump means you are paying extra for the event.

  3. If both sides are expensive at once, the market expects a big move but not sure which way.

How to handle IV crush

  1. Avoid buying single options right before results or big events. Premiums are inflated and they shrink fast after the release.

  2. Use spreads to reduce the hit from IV falling.

    1. Bullish: Bull Call Spread (buy ITM or ATM call, sell OTM call).

    2. Bearish: Bear Put Spread (buy ITM or ATM put, sell OTM put). The sold leg helps offset the IV drop.

  3. Consider trading after the event. Once IV settles, prices reflect actual price movement instead of hype.

  4. Keep risk defined. With spreads you know the max loss.

Quick checklist before trading earnings or events

  • Is IV higher than usual

  • Are both calls and puts showing high IV

  • Can I use a spread instead of a single leg

  • Do I know my max ₹ loss

Bottom line
Before earnings or big announcements, the market pays extra for uncertainty. Once the event is over, that uncertainty disappears, and so does part of your premium. If you plan to trade around results or events, do not look at direction alone. Check IV, pick the right structure, and control your risk.