Options strategies
IV crush
Definition
The sharp drop in implied volatility after a known event such as an earnings report. It cuts the price of calls and puts alike, so it hits both legs of a straddle.
Example
Say a stock trades at $80 the day before earnings and you buy an $80 call for $5.00 with implied volatility at 70%. The next morning the stock is up $2, but IV has fallen to 35% and the call is worth $3.60. You were right about the direction and still lost $140 per contract, because the crush took more value than the move added.
Hypothetical numbers, for illustration only.
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