Earnings Season Options Trading — Why I Both Love and Hate IV Crush
💡 Reading time: ~9 minutes ｜ Series: Strategy Advanced #3
If you trade options, you’ll inevitably face earnings season. Four times a year (January / April / July / October), the day tech giants report earnings is the Super Bowl of the options market.
What is IV Crush?
Pre-earnings
High market uncertainty → people expect big price moves → IV (implied volatility) spikes → options get expensive.
Post-earnings
Uncertainty disappears (regardless of the result) → IV collapses rapidly → option prices crash.
This rapid IV drop is called IV Crush.
Impact on sellers
Scenario: you sell an option before earnings
Pre-earnings: IV high → you collect fat premium ($8.00/share)
Post-earnings: IV Crush → option price crashes ($3.00/share)
You buy back at $3.00 → net $5.00/share
But! Premise: the stock didn't drop hard because of earnings.
If earnings bomb and the stock drops 10%, the IV Crush savings are nowhere near enough to cover the loss — you’ll be badly hurt.
IV Crush is a double-edged sword for sellers: fat premium, but big risk.
My four earnings season principles
Principle 1: trim 1/3 three days before earnings
No matter how bullish you are, lighten up.
6 contracts held → 3 days before earnings → close 2 contracts → 4 left
3 contracts held → 3 days before earnings → close 1 contract → 2 left
If it blows up, trimming is your airbag. Less profit, but no catastrophe.
Principle 2: don’t open new positions the day before earnings
“Pre-earnings IV is high, the premium is fat!” — Yes, but you’re betting your whole stack on a single day of fat.
Options pricing already reflects the market’s expectation of the earnings move. What you think is “collecting high premium” is really “taking on equal high risk.”
Principle 3: no trading within 24 hours of the report
After earnings drop, the stock usually moves violently after-hours, then takes 1–2 trading days to settle.
Opening before the dust settles, you don’t know which way the market will go. Wait 24 hours, let the market digest.
Principle 4: use IV Crush to close early for profit
If you’re already holding a Sell Put pre-earnings, and the earnings result is friendly to you (stock doesn’t drop or rises), you can close right after earnings — because IV Crush will crash the option price, letting you buy back cheap.
Example:
Day before earnings: your Sell Put is at floating loss -$200 (IV pushed it up)
After earnings (good): IV Crush → option price crashes
You close immediately → not only not losing, you actually make money
Real case: early-May flash trades
In early May the market was violently volatile (similar to earnings-season mood), and I did two flash trades:
| Trade | Open | Close | Days | Net P&L | Strategy logic |
|---|---|---|---|---|---|
| GOOG SP $370 | 5/5 | 5/7 | 2 | +$690 | Open when IV high, close after IV drops |
| AAPL SP $270 | 5/5 | 5/7 | 2 | +$909 | Same |
Both were “collect rent while IV is high → close fast after IV drops.” 2 days combined: $1,599 in profit.
IV reference values for earnings season
| IV level | Market state | Recommendation for Sell Put sellers |
|---|---|---|
| IV < 25% | Very calm | Premium is thin, tradeable but low return |
| IV 25%–35% | Normal | Best operating range |
| IV 35%–50% | Elevated (maybe near earnings) | Fat premium but use a more conservative strike |
| IV > 50% | Market panic / right before earnings | High premium high risk, beginners should avoid |
How to check IV?
- Single-stock IV: usually shown for each option in the broker’s option chain
- VIX index: the S&P 500 overall fear gauge, representing the broad market’s IV level
- IV Rank / IV Percentile: some tools (like Barchart.com) show where current IV sits relative to the past year
Mindset management in earnings season
The easiest mindset traps in earnings season:
| Trap | Correct thought |
|---|---|
| “Pre-earnings premium is so fat, I have to do a trade!” | Fat because the risk is big, not because you’ll get rich |
| “Earnings are out, I have to open now!” | Wait 24 hours, let the market digest |
| “This time it will definitely go up/down, all in!” | No one can predict earnings results, not even you |
| “IV Crush will save me anyway.” | IV Crush can’t save you from a 10% stock drop |
📌 Little Otter: Earnings season is the earthquake zone of the options market. You can build a house there, but you need earthquake-proofing. Trim, stop, don’t bet on the report — hold these three, and you can survive earnings season.
Disclaimer: This article is a personal trading experience share, not investment advice.
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