IV Crush

How Draconic reads it

Before a high-uncertainty event, IV expands as market participants pay elevated premiums for protection and speculation. The premium reflects expected volatility, not realised volatility. Once the event resolves — earnings reported, RBI policy announced, election results declared — uncertainty collapses and IV drops sharply, often within minutes. A trader who bought a straddle expecting a large move can be correct about the move's magnitude and still lose money if IV collapses more than the price move expands the option's intrinsic value. IV crush is the most common mechanism through which retail options traders lose money on catalyst events they correctly anticipated. The solution is not to avoid events but to understand how to structure positions that benefit from directional moves without excessive IV exposure.