What is iv crush?

IV crush refers to the rapid decline in the implied volatility (IV) of an option contract after a significant event, such as an earnings announcement or other market-moving news, has passed. Implied volatility represents the market's expectation of how much a stock or index will move in the future, and it is a key factor in determining the price of options contracts.

During periods of high uncertainty or anticipation of an event, IV tends to increase as traders and investors seek to protect themselves against potential price swings. This increased IV causes options prices to rise, making them more expensive to buy. However, once the event has occurred and the uncertainty has been resolved, IV tends to quickly decrease, leading to a decline in the price of options contracts. This rapid drop in IV is known as IV crush.

Traders who hold options positions through an event with high IV risk facing the potential for IV crush, which can result in a significant loss of value for their positions, even if the underlying stock price remains relatively stable. To protect against IV crush, some traders may use strategies such as buying options with lower IV or selling options with higher IV, or utilizing spreads or other hedging techniques.

Overall, IV crush is an important concept for options traders to be aware of, as it can have a significant impact on the profitability of their positions, particularly around events or announcements that are likely to cause volatility in the market.