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A sudden drop in implied volatility that reduces option prices dramatically.
Why It Matters
IV crush is why buying options before earnings is dangerous. IV inflates before big events (earnings, FDA decisions) because uncertainty is high. Once the event passes, IV collapses - even if the stock moves your direction, your option can lose value. A stock might go up 5% and your calls still lose money.
Key Points
- IV often drops 30-50% or more immediately after earnings announcements
- The 'volatility risk premium' means options are systematically overpriced before events
- Strategies like straddles and strangles can lose even when the stock moves big due to IV crush
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Common Questions
A sudden drop in implied volatility that reduces option prices dramatically. IV crush is why buying options before earnings is dangerous. IV inflates before big events (earnings, FDA decisions) because uncertainty is high.
IV crush is why buying options before earnings is dangerous. IV inflates before big events (earnings, FDA decisions) because uncertainty is high. Once the event passes, IV collapses - even if the stock moves your direction, your option can lose value. A stock might go up 5% and your calls still lose money.
IV often drops 30-50% or more immediately after earnings announcements
The 'volatility risk premium' means options are systematically overpriced before events
Strategies like straddles and strangles can lose even when the stock moves big due to IV crush