IV Crush

IV crush refers to the rapid decline in implied volatility that occurs after a known binary event, most commonly earnings announcements, FOMC decisions, or FDA rulings. Before these events, uncertainty drives IV higher as traders pay up for options that capture the expected move. Once the event occurs and uncertainty is resolved, IV collapses — often dramatically — regardless of which direction the stock moves. This collapse destroys option value for buyers and benefits sellers.

The magnitude of IV crush can be substantial. A stock trading at 60% IV before earnings might see IV drop to 35% afterward — a 40% decline in volatility. For an option buyer, this can mean losing 20-30% of the option's value overnight even if the stock moves in their favor. This is why you can be completely right about direction and still lose money on an options trade around earnings.

IV crush is one of the most common traps for retail options traders. The intuition of "earnings will be good, buy calls" ignores the reality that the expected move is already priced into the option. To profit from buying options around events, the stock needs to move MORE than the market expected — not just in the right direction. Options Pilot's Value and Timing pillars work together to flag IV crush risk, showing you when IV is elevated relative to history and when imminent events create crush potential so you can adjust your strategy accordingly.