Definition
IV crush occurs when implied volatility drops sharply after an anticipated event (like earnings) has passed. Before events, uncertainty drives IV higher; after the event, uncertainty resolves and IV falls rapidly. This can cause option prices to drop even if the stock moves favorably.
Example
Before earnings, IV is 80%. After the announcement, IV drops to 40%. Your call loses value from IV crush despite the stock rising 2%.
FAQ
What is IV Crush?
A sudden drop in implied volatility after an anticipated event.
Why is IV Crush important?
IV Crush helps investors evaluate options and make more informed decisions.