STRATEGIES
IV Crush Credit Spreads
IV Crush Credit Spreads - Multi-Ticker Event-Driven
After a stock moves 20%+ UP in a single day, implied volatility is elevated. Sell OTM bear call spreads the NEXT trading day to profit from IV crush as volatility mean-reverts. Backtesting revealed that UP moves only is the key — down moves have a 41% win rate and lose money overall.
- Trigger: Stock gaps 20%+ UP in a single day with option volume ≥ 1,000 contracts
- Entry: Next trading day — IV is still elevated but the stock has stabilized
- Trade: Sell bear CALL credit spread ~5% OTM from next-day close
- DTE sweet spot: 10-20 days to expiration (DTE 7-9 = 53% WR, DTE 10-14 = 78% WR)
- Spread widths: $1-$5 depending on stock price, max ~$1,000 risk per trade
- Exit: Hold through expiration - collect full credit or take max loss
- Edge: Up-move catalysts (earnings beat, FDA approval) price in quickly and stabilize. Down moves keep drilling.
- Avoid: Down moves (selling put spreads after drops = catching a falling knife, 41% WR)
BACKTEST RESULTS (Nov 2025 - Mar 2026)
HOW IT WORKS
Scan for Big Moves
Find stocks that moved 20%+ in a single day with high option volume (≥ 1,000 contracts).
Wait for Next Day
Enter the NEXT trading day — IV is still elevated but the stock has stabilized. Same-day entry has higher IV but only 38% win rate vs 62% next-day (the stock is still moving).
Sell Bear Call Spread
Sell a CALL spread ~5% OTM from next-day close. Only trade UP moves — down moves (put spreads) have 41% win rate and lose money.
Target DTE 10-20
DTE 7-9 only wins 53% — not enough time for mean-reversion. DTE 10-20 gives the trade room to breathe (84% WR).
Collect & Wait
Collect the credit upfront. Hold through expiration. IV crush + time decay work in your favor as the catalyst fades.
Settlement
If price stays OTM from sold strike, keep the full credit. If not, max loss = width - credit collected.
TRADE RESULTS
| Ticker | Move% | Dir | Entry Date | Price | Type | Sell | Buy | Width | Credit | Spread% | OI | DTE | #Ctrs | $Credit | Settle$ | P/L | Result |
|---|
Key Insights
- UP moves only = 84% win rate, 2.96 profit factor: The single biggest discovery. Down moves lose money (41% WR, PF 0.70). Up moves stabilize quickly after the catalyst; down moves keep drilling.
- DTE 10-20 is the sweet spot: DTE 7-9 only wins 53% — not enough time for mean-reversion. DTE 10-14 hits 85% WR. DTE 10-20 gives 84% WR with more trades.
- 100% of losses are from continued momentum: Not a single loss was from a reversal. Every loser was a stock that just kept running. The spread caps max loss.
- Next-day entry beats same-day (62% vs 38% win rate): IV is highest on move day, but the stock is still running. By next day the chaos has ended but IV is still elevated.
- Down moves are a different animal: When a stock drops 20%+, it's usually bad news (earnings miss, fraud, downgrade). Selling pressure continues for weeks — you're catching a falling knife.
- Why up moves work: Up catalysts (earnings beat, FDA approval, deal) are specific events that price in quickly. The stock stabilizes or pulls back, and your OTM call spread expires worthless.
- Tight bid-ask spreads (≤10%) further improve quality: Eliminates illiquid junk. Combined with up-only + DTE 10-20, win rate approaches 85%.