What Is the Relationship between ‘Implied Volatility’ and ‘Event Risk’ in Options Pricing?

Implied volatility (IV) is the market's expectation of future price movement, derived from the price of an option. Event risk, which is the potential for a sudden, large price shock due to a known future event (like a PoS transition), causes IV to increase significantly in options contracts that span the event date.

Traders are willing to pay a higher premium to hedge or speculate on the potential price swing.