IV crush (vol crush)
Definition · Level 2 · Long options & hedges
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The sharp drop in implied volatility right after a scheduled event (earnings, FDA ruling) resolves the uncertainty, deflating time value; long options can lose even when the stock moves, unless the move adds enough intrinsic value.
Example
IV 90% → 40% overnight: the straddle lost 40% on a 5% move.
Where Tradecraft teaches it
Level 2 · Long options & hedges, in the lesson “Buying volatility: straddles, strangles, long iron condors”: Expect a big move but can’t call the direction? Buy both sides.
Related terms
- Event tradeA position built around a scheduled catalyst — earnings, an FDA decision, a court ruling — e.g. buying a straddle just before and closing soon after.
- Implied moveThe move the options market is pricing for an event — roughly the price of the ATM straddle in the first expiry after it; buying that straddle needs…
- Long gammaOwning options so that your delta grows in the direction the stock moves — longer as it rallies, shorter as it falls — so large moves either way help.
- Long Iron CondorA long put spread plus a long call spread.
- Long StraddleBuy a call and a put at the same strike. You don’t care about direction — you need the stock to move more than the combined premium.
- Long StrangleBuy an OTM call and an OTM put. Cheaper than a straddle, but the stock has to travel further before you make money.