What IV crush is
IV crush is the sharp fall in implied volatility that happens immediately after a scheduled event resolves, most commonly an earnings release, but equally a Fed decision, a CPI print or a drug trial result.
It is the single most common way a trader can be right about direction and still lose money on an option.
Why it happens
Implied volatility is the market's price for uncertainty over the life of a contract. Before a scheduled event, the option has to cover two distinct things: the ordinary day-to-day drift of the underlying, and one specific moment where the price could gap.
That event premium is real, and it is priced in. As the date approaches, options expiring just after it carry visibly higher implied volatility than options expiring just before, the difference is the market's estimate of the gap. At index level the same shape appears on the VIX futures curve, where a scheduled macro event inside the window lifts the front month against the months behind it.
The moment the event passes, the uncertainty it represented is gone. Not reduced, gone. The result is known. Whatever premium was attached to it comes out of the option price essentially at once, usually within seconds of the release. The stock might move violently, but the uncertainty about whether it would move has been resolved.
Why direction is not enough
An option's sensitivity to implied volatility is vega. Near-the-money options with meaningful time remaining carry the most.
Buy a call into earnings and you own two exposures pulling in opposite directions: positive delta, which pays if the stock rises, and positive vega, which loses when implied volatility falls. After the release, vega loses with certainty and delta pays only if you got the direction right.
So the stock can rise, your call can be correct on direction, and the position can still lose, because the volatility collapse took more out of the price than the move put in. This is the standard, and thoroughly unpleasant, first encounter most traders have with vega.
Sizing it before it happens
The drop is not a surprise to anyone looking for it, and it can be estimated in advance.
The most direct method is comparing the implied volatility of the expiration immediately after the event with one further out, where event premium is diluted across more time. The gap approximates what will come out.
The more useful framing is the expected move, the magnitude the options market is already pricing for the event, derived from at-the-month straddle pricing. That number is what you are paying for. A long option position only profits if the actual move exceeds it by more than the volatility collapse takes away.
The practical test before any event trade: work out what the stock has to do for the position to break even, then ask whether that move is plausible rather than merely possible. Many event trades that feel like a strong directional view turn out to need a move larger than the stock has made on any of its last several earnings dates.
The other side of the trade
Because the collapse is predictable in direction if not in size, the mirror trade is to sell volatility into the event and buy it back after, short straddles, strangles, iron condors and calendars all express some version of it.
That trade harvests the event premium, and it carries the risk profile you would expect from selling insurance: it wins most of the time and loses badly when the move is genuinely large. The premium exists because those tails are real. A short volatility position sized as though the crush is free income is the second unpleasant lesson, and it usually arrives some months after the first.
Unscheduled events
The distinction that matters is whether the market knew the event was coming.
Scheduled events get priced ahead of time, and the crush is the release of that pricing. Unscheduled news (a surprise acquisition, an unexpected guidance cut) does the opposite: implied volatility spikes because uncertainty has just been created rather than resolved.
IV crush is specifically the resolution case. If volatility is falling without a scheduled event behind it, the cause is something else, usually a broader decline in realised volatility across the market.