Definition
A volatility crush is the rapid collapse of an option's implied volatility — the market's forward-looking estimate of how much the underlying asset will move — immediately after a scheduled event resolves. Earnings announcements are the classic trigger: ahead of the report, uncertainty inflates implied volatility, and once the news is public the uncertainty disappears almost instantly.
Because implied volatility is a direct input to option pricing, the crush also drops the option's price. A trader can correctly predict the direction of a post-earnings move and still lose money, because the fall in implied volatility offsets — or overwhelms — the gain from the price move.
Why it matters
How it works
Before a known event, demand for options pushes implied volatility well above its typical level, and premiums become expensive. Buyers are effectively paying for the possibility of a large move. When the event passes, the unknown becomes known, demand evaporates, and implied volatility snaps back toward its baseline.
The price drop applies to both calls and puts because volatility is a shared input. A straddle bought into earnings can lose value on both legs even though one leg gained from the directional move — the crush simply removes more value than the move adds.