Options & derivatives
Volatility crush
The sharp fall in option prices after an anticipated event passes.
How it works
Before an event, uncertainty is high and options are expensive. Once the news is out, the uncertainty disappears and the premium collapses regardless of the direction of the move.
Related terms
- Implied volatilityThe volatility the market is pricing into an option, derived from its premium.
- Earnings announcementA company’s scheduled publication of its financial results for a quarter or year.
- PremiumThe price paid for an option, made up of intrinsic value plus time value.
- VegaHow much an option’s price changes when implied volatility moves by one point.
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