Implied Volatility and IV Crush Explained

Implied volatility is the volatility input consistent with observed option prices under a pricing model. It commonly rises before uncertain events and can fall after uncertainty is resolved.

What is IV crush?

“IV crush” describes a sharp decline in implied volatility, often after earnings or another scheduled event. Option prices can lose extrinsic value quickly.

Direction is only one variable

A long call buyer may predict an upward move correctly but still lose if the move is smaller than priced, arrives late, or is offset by falling implied volatility and time decay.

Compare the move with the price

Study the combined at-the-money call and put premium, term structure, historical event moves, and the strategy’s break-evens. None of these guarantees an outcome.

Defined risk remains essential

Event gaps can skip over planned exits. Know the maximum loss before the announcement and avoid assuming a stop order will fill at the requested price.