How Do News Events and Earnings Reports Affect Implied Volatility?

News events and earnings reports are major catalysts for increases in implied volatility. Because these events introduce significant uncertainty about a company's future performance and stock price, demand for options as a hedging or speculative tool surges.

This increased demand drives up option premiums, which in turn reflects a higher implied volatility. Traders anticipate a large price swing, though the direction is unknown.

After the news is released and the uncertainty is resolved, implied volatility typically drops sharply, an event known as "volatility crush."