What Is IV Crush?

Many new option buyers face the same shock: the stock moved in their favour, yet their option still lost money. The usual culprit is IV crush.

What implied volatility actually is

Implied Volatility (IV) is the market’s expectation of how much a stock or index might move in future. It is not direction — only the expected size of the move. High IV makes options expensive; low IV makes them cheaper.

Why IV rises before events

Before a known event — results, a budget, an RBI decision — uncertainty is high, so traders rush to buy options and push IV up. Premiums get inflated, sometimes far beyond what the actual move can justify.

The crush

The moment the event passes, uncertainty disappears and IV collapses quickly. This sudden drop is IV crush. Because much of the premium was inflated volatility, the option can lose value even if the stock moves in your direction.

A simple example

A buyer pays a rich premium for a call before results expecting a jump. The stock rises a little, but IV halves overnight. The gain from the small move is smaller than the loss from the IV drop, so the call still loses. Right on direction, still a loss — that is IV crush.

How traders deal with it

• Buyers avoid expensive options right before events unless they expect a move far bigger than priced in.
• Sellers often sell when IV is high and benefit as it crushes — volatility is the heart of selling.
• Always check IV percentile / IV rank first.

We cover IV crush in detail in both the Option Buying and Options Selling courses.