How Does a Sudden Drop in Volatility Affect an Option’s Price?

A sudden drop in volatility, particularly implied volatility, will almost always lead to a decrease in an option's price, for both calls and puts. This is because lower volatility suggests a smaller expected price movement in the underlying asset, reducing the chance of the option finishing in-the-money.

This effect, known as "vega," can cause an option's value to fall even if the underlying asset's price moves in a favorable direction. Consequently, option buyers are hurt by falling volatility, while option sellers benefit.