IV Crush Simulator
IV crush is the rapid decline in implied volatility after an anticipated event (like earnings). This drop can cause option prices to fall even if the stock moves in your favor.
Use the hypothetical straddle below to isolate the effect of a relative IV change, then compare dates and stock prices. The full builder supports other option-leg combinations.
Understanding IV crush is essential for earnings plays, FDA announcements, and other binary events where volatility typically drops after the news.
Try a hypothetical long straddle
One call and one put at the same strike, 100 shares per contract. Entry premiums are model values; this example uses no market feed.
IV changes are relative: a 20% decrease takes 40% IV to 32%, not 20%. Keep stock price and time unchanged to isolate IV. Presets are stress tests, not forecasts of typical earnings moves.
Black–Scholes, 4.5% annual interest, no dividends or trading costs. At expiration, intrinsic value replaces time value.
How IV Crush Affects Different Strategies
These are local sensitivities with stock price and time held constant. Price gaps and changing exposure can outweigh the IV effect.
| Strategy | Vega Exposure | IV Crush Impact |
|---|---|---|
| Long Straddle/Strangle | +Vega (Long) | Hurts position value |
| Short Straddle/Strangle | -Vega (Short) | Helps position value |
| Iron Condor | Often negative near the center | Can help near the center; exposure changes with price |
| Long Call/Put | +Vega (Long) | Hurts position value |
| Vertical Spreads | Reduced (hedged) | Depends on strikes, stock price, and net vega |
| Calendar Spread | +Vega (Long back) | Complex - varies by IV structure |
Frequently Asked Questions
IV reflects uncertainty. Before earnings or events, uncertainty is high, so IV rises. After the news is released, uncertainty drops, and so does IV - often dramatically. This rapid IV drop is "IV crush."
Ready to model IV changes?
Use OptionsCalc's IV slider to see exactly how volatility changes affect your position. Free to use, no account required.
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