How Does a Sudden News Event Typically Affect the Implied Volatility of a Derivative?

A sudden, unexpected news event, such as a regulatory announcement or a major hack, typically causes a sharp and immediate increase in the implied volatility (IV) of the related derivative. This is because the event introduces significant uncertainty about the future price path.

Higher IV leads to higher option premiums and a widening of the bid-offer spread as market makers adjust for increased risk.