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Lost money even though you had a call on a stock going up? That very likely was due to IV crush. In this one, we discuss three possible ways manage your options positions to avoid the dreaded IV crush. IV crush, AKA implied volatility crush, is when the value of your options decrease in as implied volatility decreases. Because implied volatility tends to decrease as the underlying increases, it’s possible to lose money due to IV crush even if you guessed the correct direction of the underlying.
The first way is through spreads. Spreads can be long or short volatility depending on which leg is closer to ATM, although their overall vega is significantly less than that of a single, naked option. Of course, your leverage is diminished as well.
The second way is buy hedging SPY calls with VIX puts. While things remain somewhat hedged as the underlying increases in value, if things go down you will lose money from both options.
The last method is buying ITM. ITM options will have significant leverage while having a low vega, reducing your overall risk of IV Crush.