How Does a “Volatility Crush” Impact the Profitability of Options Market Makers?

A volatility crush is a rapid decrease in implied volatility (IV), usually after a major event. Since options derive a significant portion of their value from IV (Vega), a crush causes option prices to plummet.

Market makers, who are often short volatility, profit from the decrease in option prices, as their short positions become less expensive to cover.