How Does Negative Sentiment Affect the Implied Volatility of Options?

Negative sentiment, especially during a market downturn, causes options traders to anticipate larger, faster price movements to the downside. This increased expectation of volatility drives up the demand for protective put options.

The higher demand for these puts, and the associated fear, directly increases the premium options buyers are willing to pay. This surge in premium is mathematically reflected as a sharp rise in implied volatility (IV).