Definition
IV Crush
IV crush is the sudden collapse in implied volatility — and option premiums — right after a major event passes.
Before a known event such as quarterly results, the RBI policy, or the Union Budget, implied volatility rises as traders buy protection, inflating option premiums. The moment the event is over and uncertainty resolves, IV drops sharply — the crush — and premiums deflate even if the stock moves in the expected direction.
This is the classic trap for Indian retail buyers who buy a straddle before results: the stock may move, but the IV crush wipes out the gain. Experienced traders instead sell premium into the event to harvest the crush, accepting the directional risk.
Related terms
- VegaVega measures how much an option's premium changes when implied volatility rises or falls by 1%.
- Long StraddleA long straddle buys a call and a put at the same strike to profit from a big move in either direction.
- Implied VolatilityImplied volatility (IV) is the market's forward-looking estimate of how much a stock or index will swing, backed out from current option prices and expressed as an annualised percentage.
- India VIXIndia VIX is the NSE's volatility index, measuring the market's expectation of Nifty volatility over the next 30 days — popularly called the 'fear gauge' because it spikes when investors turn anxious.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.