Implied Volatility (IV) Crush 

IV Crush (Implied Volatility Crush) refers to the sharp and sudden drop in implied volatility of an option—most commonly after a major anticipated event, such as an earnings announcement. This drop reduces the extrinsic value of the option, often causing a loss for buyers even if the stock moves as expected.

Key Features: 

Importance of Implied Volatility (IV) Crush 

Understanding IV Crush is critical for options traders, especially around events like earnings. Traders who buy options without factoring in IV Crush risk overpaying, while sellers can strategically position themselves to capitalize on the volatility drop.

FAQ

What causes IV Crush?
It happens when an anticipated event (like earnings) passes, and uncertainty is removed from the market.

Does it affect both calls and puts?
Yes—IV Crush affects both sides of the options chain if IV is high due to the event.

Can I lose money even if the stock moves in my favor?
Yes—if IV drops enough, the reduction in extrinsic value can offset your gains.

How do I avoid IV Crush?
Avoid buying options just before earnings or major announcements unless you are trading volatility.

Is IV Crush predictable?
Yes—especially in stocks with regular event-driven spikes, such as earnings reports.

Who benefits from IV Crush?
Option sellers—especially those who sell premium via strategies like short straddles or credit spreads.

How does IV Crush affect spreads?
Spreads reduce IV exposure; the long and short legs offset some of the IV changes.

Does IV Crush affect intrinsic value?
No—it only affects the extrinsic (time) value of the option.

Is IV Crush more severe in weekly options?
Typically, yes—because short-dated options have higher sensitivity to IV changes.

How does Vega relate to IV Crush?
Vega measures sensitivity to IV. High Vega options lose more value when IV drops.