Volatility Crush
A rapid decline in implied volatility, typically occurring after a known event like earnings.
Explanation
Before events like earnings, IV inflates to reflect uncertainty. After the event, uncertainty resolves and IV drops sharply (crushes). This can cause option prices to decline significantly even if the stock moves in the expected direction. Volatility crush is the primary risk for long options holders through earnings.
Example
AAPL IV is 40% before earnings. The stock moves +2% on the report, but IV crushes to 22%. A long call loses money despite the favorable move because the vega loss exceeds the delta gain.