Volatility
What is IV Crush?
A sharp drop in implied volatility after an event like earnings.
📖 Complete Definition
IV crush occurs when implied volatility drops significantly after a known event (earnings, FDA decisions, etc.) as uncertainty resolves. Even if you correctly predict the stock direction, IV crush can cause option losses because the vega effect (IV dropping) outweighs the delta effect (stock moving). This is why buying options before earnings is risky.
Examples
- →Stock moves up 3% after earnings, but your call loses 20% due to IV dropping 15 points
- →Pre-earnings IV might be 80%, crushing to 40% after the announcement
❓ Frequently Asked Questions
How can I avoid IV crush losses?
Sell options before events to benefit from IV crush, use debit spreads to reduce vega exposure, or buy options after IV has already crushed if you have a directional view.
🔗 Related Terms
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