Playing Earnings With Minimal IV Crush: NVDA Example

Nvidia’s significance in the semiconductor and AI sectors makes it a compelling subject for traders seeking opportunities in both long and short volatility strategies.

What Is Long Volatility?

Long volatility is a strategy where you speculate that the actual stock move will surpass the implied move.

In other words, implied volatility ends up being lower than realised volatility, and the stock’s movement exerts a greater influence on the position price than the effects of IV crush and theta decay.

This strategy typically involves non-directional positions such as:

• Straddles
• Strangles
• Inverse condors
• Butterflies

Precise adjustment of strike prices and expiration dates in the risk profile enables you to customise a position that matches your risk tolerance.

It is essential to note that long positions during earnings carry the risk of substantial losses if the actual market movement is disappointingly low, primarily due to IV crush.

The key is to establish a position with a favourable implied move compared to past moves, and to calibrate the position to reduce potential losses using different techniques.

Historical Context and Recent Developments

Nvidia’s recent strides in AI and its positive guidance have set the stage for an intriguing earnings release. Examining its historical context, the company experienced a paradigm shift in its stock behaviour post-2020.

The era from 2019 to 2020 saw Nvidia operating largely within implied moves, including during the Bitcoin and blockchain development frenzy.

However, the more recent years, notably from 2021 onwards, showcase a different trend, with realised moves more frequently exceeding historical averages.

Long Volatility Opportunity

Given Nvidia’s recent dynamic performance and the alignment of its implied move with historical averages, there can be a potential long volatility opportunity when implied moves look modest relative to what history suggests is possible.

The option simulator lets you calibrate positions that take advantage of this type of setup by stress-testing different structures against realistic scenarios.

Closest Expiration Straddle

We start by comparing classic positions such as the straddle and strangle. The closest expiration straddle is the basic reference point.

In this example, the closest-expiration straddle:

• Costs around $37 per contract
• Embeds an implied move of roughly ±6.9%

As you move to wider strangles:

• Their prices decrease (OTM options are cheaper than ATM)
• But their breakevens widen, making them riskier and more dependent on large moves

When we open the full position breakdown for the closest-expiration straddle, we can analyse its projected P&L through the week around earnings.

Even though this is an at-the-money position, the simulator shows a substantial loss on earnings day (Wednesday in this example) if NVDA doesn’t move at all:

• Roughly –46% in a no-move scenario on the event

A pure “no move” is unlikely based on historical behaviour, but it’s still a scenario you should be prepared for and comfortable with before entering the trade.

The question becomes: can we keep the upside idea while reducing that maximum loss?

Using the Next Expiration Date to Reduce IV Crush

To manage the impact of IV crush, we can look at a position with a later expiration while keeping the same strikes — for example, moving from the closest expiration to a December 1st expiration.

Options in the next expiration are:

• Less affected by the earnings-day IV crush
• More expensive (more time value)
• Generally lower risk/reward (shallower P&L curve) for the same move

When we open the list of straddles and strangles for the later expiration, we see that:

• The same straddle with the December 1st expiration now costs around $45 per contract
• Its breakeven stays roughly the same, around ±6%, which is still favourable when comparing to past earnings moves

The simulator shows that this later-expiration straddle significantly reduces potential losses, especially in the worst-case “no move” scenario.

In this example:

• Max loss around earnings day in a no-move scenario drops to roughly –17%
• If the no-move scenario persisted until the end of the week, the position would be at about –26%

So even in the worst cases, this position is still exit-able with a relatively moderate loss, while keeping upside if NVDA delivers a larger-than-implied move.

That’s the essence of “playing earnings with minimal IV crush”:

• Use historical distributions and implied moves to decide if long vol makes sense
• Then use expirations and structure to shape the risk so you’re not fully exposed to the nearest-expiration crush

Takeaways From the NVDA Example

NVDA is a good illustration of how long volatility around earnings doesn’t have to mean embracing maximum IV crush.

• Start from data — historical earnings moves and how they compare to the current implied move.
• Use the closest-expiration straddle as a reference, but be honest about the max loss if the stock barely moves.
• Explore next-expiration alternatives that keep the same directional neutrality but reduce the impact of the crush.
• Size the trade so that even the worst-case loss is something you’re comfortable with before entering — not something you react to emotionally on earnings day.