Course · Act I: Read the Chain · Chapter 4

Implied volatility and IV crush

Implied volatility is the move already priced into an option. After earnings that uncertainty collapses, and a call can lose money even when the stock rises.

Key terms

Implied volatility: The move assumed by an option’s price. Higher IV means a richer premium for both calls and puts.
IV crush: The drop in implied volatility, and in extrinsic value, once an event such as earnings is over.

“IV Crush” is part of the full course: 6 puzzles on implied volatility and iv crush. RocketCo is fictional, and none of this is a trade. Try this act’s free chapter, “Calls, Puts, and the Contract”, first.

Play the free chapter →See the course