How Does a Large, Sudden News Event Affect the Volatility Smile? ⎊ Path

How Does a Large, Sudden News Event Affect the Volatility Smile?

A large, sudden news event, especially one that introduces significant uncertainty (e.g. a regulatory change), typically causes the entire volatility smile to shift upward, meaning implied volatility increases across all strike prices. It may also exacerbate the skew or smile, as the market scrambles to price in the increased probability of extreme outcomes.

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Explain the Concept of “Volatility Smile” or “Volatility Skew” in Options Trading

How Does a Sudden, Unexpected News Event Typically Affect Implied Volatility?

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What Does a ‘Reverse Skew’ (Or ‘smirk’) in Volatility Imply about Market Risk?

Explain the Concept of “Volatility Crush” Following a Major News Event

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