How Does a "Volatility Crush" Affect an Option's Time Value? ⎊ Path

How Does a “Volatility Crush” Affect an Option’s Time Value?

A volatility crush occurs when implied volatility (IV) drops sharply after a significant market event, such as an earnings report or a major crypto network upgrade. This sudden decrease in expected future volatility severely reduces the option's time value, as the probability of large price swings diminishes.

This can lead to significant losses for options buyers.

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