Row 61486

Row ID: 61486 | Dataset Entry | Axioma AXP Content Repository

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This page contains data entry 61486 from the Axioma AXP content repository. The structured data below represents the complete record for this entry.

What is an IV crush?

IV or Implied Volatility of an option is the measure of uncertainty or market's expectation of the future volatility.

IV of an option jumps up prior to a significant event like:

1) Earnings announcement 2) New product launch 3) FDA approval [pharma companies] 4) Release of economic data like CPI, PPI, inflation, unemployment rate etc 5) Fed speak

IV is a significant contributer to the options premium.

Market makers, trader etc like to sell options during high IV phase [and delta hedge by the trade to protect the position].

Usually, significantly OTM and ITM options have higher IV than ATM options [forming the volatility smile].

Once a significant event like earnings has passed and there is no new news/event anticipated till the expiry of the option: IV crush occurs which cause the option premiums to plummet.

How to protect yourself against IV crush:

1) Buy an option well before a significant event [ low IV] and sell a day before or on the day [high IV]

2) Or Buy ATM or slightly ITM options so should the market moves in your favour, delta alone increase the value of the option

3) Buy an option with expiry 2-3 weeks beyond the significant event to reduce the impact of IV crush

FieldValue
text What is an IV crush? IV or Implied Volatility of an option is the measure of uncertainty or market's expectation of the future volatility. IV of an option jumps up prior to a significant event like: 1) Earnings announcement 2) New product launch 3) FDA approval [pharma companies] 4) Release of economic data like CPI, PPI, inflation, unemployment rate etc 5) Fed speak IV is a significant contributer to the options premium. Market makers, trader etc like to sell options during high IV phase…
label r/wallstreetbets
dataType post
communityName r/wallstreetbets
datetime 2024-05-23
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Raw Record

{
  "text": "What is an IV  crush?\n\nIV or Implied Volatility of an option is the measure of uncertainty or market's expectation of the future volatility.\n\nIV of an option jumps up prior to a significant event like:\n\n1) Earnings announcement\n2) New product launch\n3) FDA approval [pharma companies]\n4) Release of economic data like CPI, PPI, inflation, unemployment rate etc\n5) Fed speak\n\nIV is a significant contributer to the options premium. \n\nMarket makers, trader etc like to sell options during high IV phase [and delta hedge by the trade to protect the position].\n\nUsually, significantly OTM and ITM options have higher IV than ATM options [forming the volatility smile].\n\nOnce a significant event like earnings has passed and there is no new news/event anticipated till the expiry of the option: IV crush occurs which cause the option premiums to plummet.\n\nHow to protect yourself against IV crush:\n\n1) Buy an option well before a significant event [ low IV] and sell a day before or on the day [high IV]\n\n2) Or Buy ATM or slightly ITM options so should the market moves in your favour, delta alone increase the value of the option\n\n3) Buy an option with expiry 2-3 weeks beyond the significant event to reduce the impact of IV crush\n\n",
  "label": "r/wallstreetbets",
  "dataType": "post",
  "communityName": "r/wallstreetbets",
  "datetime": "2024-05-23",
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