IV Crush
The abrupt collapse in an option's implied volatility once a scheduled, binary event resolves -- most commonly an earnings report, but also an FDA decision, a court ruling, or a regulatory vote. Before the event the market bids implied volatility up because a large move is expected and its direction is unknown; the moment the news lands, that uncertainty is gone and implied volatility falls back toward its ordinary level, often by tens of percentage points in a single session. Vega translates the fall into dollars, and on a short-dated at-the-money contract the vega loss routinely exceeds the delta gain from the move itself. This is why a buyer can call the direction correctly, watch the stock gap their way, and still find the option worth far less than it cost: they paid peak retail for a volatility component with a known expiry date.
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Related terms
American Option · Asian Option · Barrier Option · Basket Option · Butterfly Spread · Calendar Spread
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