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IV crush

A sharp fall in implied volatility after a known event, such as earnings.

OptionsIntermediate

Definition

Before earnings, options are priced for a big move. Once results are out, that uncertainty disappears and IV drops quickly, cutting option prices even when the stock moves in your favor.

Example

Hypothetical exampleA call bought the day before earnings can lose value the next morning even if the stock rises modestly, because the drop in IV outweighs the gain from the move.

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