Volatility Crush

A volatility crush is a sharp and sudden decline in the implied volatility (IV) of options following a major anticipated event—such as a quarterly earnings announcement, RBI monetary policy decision, or Union Budget—once the event has passed and the uncertainty that inflated option premiums is resolved. Before the event, demand for options as a hedge drives implied volatility and option premiums to elevated levels. Once the event outcome is known, that uncertainty evaporates and IV collapses rapidly, causing options prices to fall sharply even if the underlying asset moves in the expected direction. Volatility crushes are a key risk for options buyers who hold positions through events—they can lose money even when their directional call is correct if the IV decline offsets the intrinsic value gain.