# Volatility Crush and Expansion

> Implied volatility tends to rise before events and collapse after them. Learn why volatility crush happens, how to measure it and how to trade options around events.

Source: https://learn.tradelabsai.com/volatility/volatility-crush-and-expansion/  
Track: Volatility · Level: Advanced · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Volatility Crush and Expansion", https://learn.tradelabsai.com/volatility/volatility-crush-and-expansion/

Implied volatility does not sit still. It tends to build up before scheduled events, such as earnings reports, central bank decisions and major economic releases, and then collapse once the event has passed and the uncertainty is resolved. The collapse is called volatility crush; the build up is volatility expansion. Understanding this cycle explains why traders can be right about direction and still lose money on options, and why selling options before events is popular but risky.

## Why volatility expands before events

Before a known event, there is a known chance of a large move on a specific day. Options that expire after the event must price that extra risk, so their implied volatility rises. Options that expire before the event are unaffected. See [Volatility Term Structure](https://learn.tradelabsai.com/volatility/volatility-term-structure/).

## Why it crushes after

Once the news is out, the uncertainty it carried disappears. The options no longer need to price the event, so implied volatility falls back towards normal levels, often within minutes of the market opening.

**Example: Earnings crush in numbers**
A stock trades at $150 the day before earnings. The weekly at the money straddle costs $12, an implied move of 8%, with implied volatility of about 72%. After the report, the stock rises 4% to $156. Implied volatility falls to 35%.

- The $150 call rises from about $6.05 to about $6.80, a modest gain for a 4% move in its favour.
- The $150 put falls from about $5.95 to about $0.70.
- The straddle, bought for $12, is now worth about $7.50, a loss of more than a third, even though the stock moved 4%.

Because the actual move (4%) was smaller than the implied move (8%), straddle buyers lost and sellers profited. Prices are Black Scholes estimates with a 5% rate.

## Measuring the expected crush

Traders estimate the event's share of volatility by comparing expiries before and after the event, or by comparing current implied volatility with typical non event levels. The expected crush is roughly the difference between the event expiry's implied volatility and what it would be without the event. See [Earnings Trading](https://learn.tradelabsai.com/strategies/earnings-trading/).

## Expansion in other situations

Implied volatility also expands outside scheduled events:

- **Market selloffs:** index volatility jumps as prices fall. See [The VIX](https://learn.tradelabsai.com/volatility/the-vix/).
- **Unexpected news:** takeovers, lawsuits, regulatory actions.
- **Contagion:** stress in one market spreads to others.

These expansions are less predictable and often larger than event build ups.

## Trading around events

| Strategy | View | Risk |
|---|---|---|
| Sell straddles or iron condors before the event | Move will be smaller than implied | A big surprise move. See [Iron Condor](https://learn.tradelabsai.com/options/iron-condor/) |
| Buy straddles before the event | Move will be larger than implied | Crush if the move is small. See [Straddle](https://learn.tradelabsai.com/options/straddle/) |
| Buy options early, sell before the event | Volatility will build into the event | Volatility may not rise as expected |
| Calendar spreads selling the event expiry | Front volatility will collapse | Large move away from the strike. See [Calendar Spreads](https://learn.tradelabsai.com/options/calendar-spreads/) |
| Directional vertical spreads | Direction, with low vega | Capped profit. See [Vertical Spreads](https://learn.tradelabsai.com/options/vertical-spreads/) |

## How to avoid the crush trap

- **Compare the implied move with past moves** for the same company or event type.
- **Use spreads** instead of single options for directional event bets, since the short leg offsets much of the vega. See [Vega](https://learn.tradelabsai.com/options/vega/).
- **Buy options after the event** if you want directional exposure without paying for event volatility.
- **Check the term structure** to see how much is priced into the event expiry.

## Common mistakes

- **Buying calls before earnings** without realising how much volatility is priced in.
- **Selling event volatility with too much size,** since occasional big surprises can wipe out many wins.
- **Assuming crush is guaranteed:** if the move is large, implied volatility can stay elevated.

## Frequently asked questions

### What is volatility crush?

The sharp drop in implied volatility after an event such as an earnings report, once the uncertainty has been resolved.

### Why do my options lose value after earnings even when I am right?

Because the fall in implied volatility reduces option prices, and if the stock moves less than the implied move, that loss outweighs the gain from the move.

### How can I trade earnings without volatility crush?

Use spreads that reduce vega exposure, trade the stock after the announcement, or sell volatility if you expect a smaller move than implied.

Next, learn to trade the shape of the smile in [Skew Trading](https://learn.tradelabsai.com/volatility/skew-trading/).

## Continue learning

- Next lesson: [Skew Trading](https://learn.tradelabsai.com/volatility/skew-trading/)
- Previous lesson: [Volatility Trading](https://learn.tradelabsai.com/volatility/volatility-trading/)
- Related: [Volatility Trading](https://learn.tradelabsai.com/volatility/volatility-trading/): Volatility trading profits from the size of price moves, not their direction. Learn implied vs realised bets, the main instruments and how to manage risk.
- Related: [Earnings Trading](https://learn.tradelabsai.com/strategies/earnings-trading/): Earnings trading positions around quarterly company reports. Learn how expectations, guidance and implied moves drive reactions, and the main strategies.
- Related: [Implied Volatility (IV)](https://learn.tradelabsai.com/volatility/implied-volatility/): Implied volatility is the market's forecast of future movement, backed out from option prices. Learn how to read it, convert it to expected moves and use it.
- Related: [Vega](https://learn.tradelabsai.com/options/vega/): Vega measures how much an option's price changes for a 1 point move in implied volatility. Learn how it varies by expiry and why it matters around events.
- Related: [Straddle](https://learn.tradelabsai.com/options/straddle/): A straddle buys or sells a call and put at the same strike and expiry. Learn how long straddles profit from big moves, short ones from calm, and the implied move.
- Related: [Volatility Term Structure](https://learn.tradelabsai.com/volatility/volatility-term-structure/): The volatility term structure plots implied volatility across expiries. Learn what upward and inverted curves mean, how events show up and how traders use it.