Options Glossary
IV crush is the sharp, often sudden drop in an option's implied volatility right after the event it was pricing in has passed. It's one of the most common ways options traders lose money on a position even when they correctly predicted the stock's direction.
Implied volatility (IV) is the market's forecast of how much a stock is likely to move. Ahead of a known event like an earnings report, that forecast climbs because the outcome is still uncertain. The moment the event happens and the uncertainty resolves, there's no longer a reason to price in that extra movement, so IV drops fast. Because vega measures how much an option's price changes for every point IV moves, a large IV crush can wipe out a meaningful chunk of an option's value in a single session, independent of what the stock price actually did.
Earnings season is the most visible example. IV on a stock's options typically rises in the days leading up to its earnings report, then collapses the next morning once the numbers are out. A trader who bought a call the day before earnings can watch the stock gap up and still lose money on the option, because the drop in IV outweighed the gain from the stock's move.
IV crush hurts traders who are long options, meaning they bought calls or puts and are long vega, since falling IV works directly against them. It helps traders who sold options, since a premium seller is short vega and benefits when IV drops, collecting more of the original premium as time value evaporates faster than usual. This is a large part of why some traders deliberately sell options into elevated pre-earnings IV rather than buying them.
Traders who hold options through an event they know is coming usually check their vega exposure first, so they know roughly how much a realistic IV drop could cost them before it happens. Some close long options ahead of the event entirely, others switch to defined-risk spreads that are less sensitive to IV, and premium sellers use the same math to estimate how much they stand to collect if the crush plays out as expected.