![]() Traders entering this trade are hoping the stock has a small move over the life of the options. ![]() Sell 1 NVDA November 19, 302.50 call 8.75Īs a reminder, a short straddle involves selling the at-the-money call, and at-the-money put. Let’s look at an example of how a short straddle performed over NVDA’s 3rd quarter earnings report. The November put option with a strike price of 250 was trading for around $0.22 and showed an IV reading of 104.74%.Īccess 9 Free Option Books IV Crush Example – NVDA Short Straddle However, in reality, no one would be trading 100 strike options when NVDA is trading above 300. We can see that skew is the highest in the short-term options with out-of-the-money puts showing a volatility reading of nearly 400%! We can see the level of implied volatility for all strikes across various time periods. The following image is from OptionNet Explorer and shows a great visual of the volatility skew. These options will be impacted the most by volatility changes. We can see that the shortest-term options have the highest level of implied volatility. Here is how the implied volatility looked for the at-the-money options over various expiration dates: Two days before earnings, NVDA was trading at 302.32. It is a situation where the extrinsic value of an option contract declines sharply because of a significant event occurring.įor example, the reporting of corporate earnings or a regulatory announcement. IV crush is a phenomenon that tends to catch many beginners off guard. Today, we’re going to drill down further into a specific IV crush example using NVDA. Yesterday, we looked at the concept of IV crush and some specific examples from this year.
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