DON’T Trade During Earnings! How IV Crush is Ruining Your Profits

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In this video I will be talking about implied volatility and how it relates to options. Implied volatility represents the expected volatility of a stock over the life of the option. Implied volatility is influenced by the supply and demand of the stock options and by how the market's expectation of the share price's may change in either direction. As the demand for an option increases, implied volatility will go up as well. Options that have high levels of implied volatility will result in high-priced option premiums because of an increase in extrinsic value.

Every strike price will respond in different way according implied volatility changes. Options with strike prices that are near the money are most likely to be affected by implied volatility changes, and conversely, options that are further in the money or out of the money will be less affected. One of the options Greeks, Vega, can determine an option's sensitivity to implied volatility changes. Vega shows a change in premium price with 1% Increase in the stocks implied volatility.

We will see in the video that you can use the past trends of implied volatility to help us trade options because the price will always want to revert back to the mean over time. So we buy calls during a period of low IV and then sell options during a period of high IV.

To limit our exposure to Vega we can trade spreads, buy in the money options, as well as avoid times of volatility like earnings calls, ex dividend dates, and FDA approvals. I will show the reason to avoid these times in the video which relates to a common phrase, IV Crush. You will now know how to avoid IV crush and use IV to your advantage!
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