Implied Volatility: The Options Market's Forecast — Options Fundamentals

§ 01

IV Level	What It Means	Options Are	Typical Scenario
Low (< 20%)	Market expects calm	Cheap	Steady blue chips, post-earnings lull
Medium (20–40%)	Normal uncertainty	Fairly priced	Most stocks, most of the time
High (40–80%+)	Market expects big moves	Expensive	Pre-earnings, biotech catalysts, market panics

§ 02

IV typically spikes before earnings announcements (uncertainty about results) and collapses afterward (the uncertainty is resolved). This ‘IV crush’ can destroy option value even if the stock moves in your direction.

§ 03

Check a stock’s current implied volatility before and after an earnings announcement. Notice how IV collapses once the event passes — this is IV crush in action.

§ 04

You buy a call before earnings with IV at 60%. Earnings are good and the stock rises 3%. But your option loses money. Why?

§ 05

Never buy options when IV is high unless you have a strong directional conviction that exceeds the implied move. When IV is high, consider selling options instead. When IV is low, buying options gives you more bang for your buck.

§ 06

Implied volatility (IV) on SPY options jumps from 15% to 30% overnight. What are the LIKELY market conditions?

Five questions · AI feedback

Sit with the ideas.

You buy a call option the day before earnings. The stock barely moves after earnings. Even though you predicted the direction correctly, the option loses value. Why?

Why:

Sit with the ideas.

Other lessons in this course.