What is IV crush?
IV crush is the sharp drop in implied volatility that hits options after a known event — most commonly earnings — passes. Before the event, uncertainty inflates option prices; the moment the news is out, that uncertainty premium evaporates and implied volatility collapses. An option can lose a large share of its value overnight even if the stock moves in the direction the buyer predicted, because the volatility component of the price deflated faster than the directional move added value.
Why does implied volatility collapse after earnings?
Option prices embed the market’s expectation of future movement. A stock about to report earnings might have a large move priced in, so its near-dated options carry elevated implied volatility. Once the report is released, the binary uncertainty is resolved — whatever the outcome, there is no longer an unknown event ahead — so the extra volatility premium has no reason to exist. Market makers reprice options to the stock’s normal expected movement, and IV falls back toward its baseline, usually within the first minutes of trading.
How much value can IV crush destroy?
It depends on how inflated IV was and how much of the option’s price was extrinsic value. Short-dated at-the-money options bought at peak pre-earnings IV are the most exposed: they carry maximum uncertainty premium and no intrinsic cushion. A stock can beat earnings, gap up, and its calls can still open lower — the directional gain was smaller than the volatility loss. This is the classic trap: being right on direction and wrong on the trade.
How do traders avoid IV crush?
The standard approaches: trade spreads instead of naked long options (selling one leg offsets the inflated IV you’re buying in the other); compare current IV to the stock’s historical post-event IV to judge how much crush is coming; check whether the move implied by the options is larger than the stock’s typical earnings move; or simply avoid holding long premium through the event. None of these are trade recommendations — they’re the mechanics of how the risk is managed.
Is IV crush the same as vega risk?
IV crush is vega risk realized. Vega measures how much an option’s price changes per point of implied volatility; long options are long vega, so when IV collapses, the position loses value at its vega rate. Event-driven IV crush is the most concentrated form — a large, near-certain vega loss compressed into a single moment, which is why it dominates the P&L of short-dated options held through earnings.
Last updated: August 2026 — Published by SpotGamma. Related: options volatility explained and gamma exposure (GEX).