What is IV crush?
IV crush is the sharp drop in an option's implied volatility after an expected event like earnings. Because implied volatility is part of the option's price, the premium can fall even when the stock moves in your direction.
Implied volatility (IV) is the market's estimate of how much a stock might move. Before a known event — earnings, a drug trial result, a court ruling — uncertainty is high, so IV and option premiums rise.
Once the news is out, the uncertainty is gone. IV drops quickly, and the extrinsic value of the options drops with it. That is the crush.
Hypothetical example: a call costs $3.00 the day before earnings with high IV. The stock rises 3% after the report, but IV falls sharply. The call may now be worth $2.40 — a loss despite the right direction, because the move was smaller than the price already assumed.
Traders manage this by comparing the expected move priced into options with their own view, avoiding buying expensive premium right before events, or using spreads that reduce exposure to volatility changes.
This is education, not a recommendation; options can lose their entire value.
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