Premium Trap in Option Buying – Learn the Game of IV Crush!Hello Traders!
If you’ve ever bought an option thinking it will explode — only to see the premium barely move or even drop — you’ve likely been a victim of the IV manipulation trap . Let’s understand how this “Premium Trap” works and how Implied Volatility (IV) can be silently killing your trades.
What is the Premium Trap?
The premium trap happens when IV drops significantly after you enter an options trade , especially during high-impact news events, earnings, or sudden market moves . Even if the stock moves in your direction, the option premium doesn’t rise as expected due to IV Crush .
How IV Manipulation Hurts Option Buyers
IV Builds Up Before Events: Before events like results or budget announcements, IV rises, inflating premiums.
Post-Event IV Crush: Once the event is over, even with expected moves, IV drops rapidly — causing premiums to deflate.
Flat Premiums in Trending Markets: Sometimes, the price moves gradually, but IV keeps falling, keeping premiums flat.
Theta Decay + IV Crush Combo: This deadly combo eats up your premium even if the market is moving in your favor.
How to Avoid the Trap
Check IV Before Entry: Avoid buying when IV is already high unless you expect a very large move.
Buy Deep ITM Options: They have less Vega and are less sensitive to IV drops.
Trade After IV Settles: Instead of trading before news, wait until after IV cools down and direction becomes clear.
Track IV Trend: Use IV percentile or IV rank to understand whether the current IV is high or low compared to its range.
Conclusion:
Option buying is not just about direction — timing and volatility are key . Don’t get trapped by inflated premiums and IV manipulation. Learn to read volatility before taking trades, and always manage your risk and expectations like a pro!
Have you ever been trapped by IV crush? Share your experience in the comments below!
