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FAQ
Why Did IV Drop and My Option Lose Value?
Your option lost value and the stock didn’t even move against you. The culprit is almost always a drop in implied volatility.
NoVo Options Trading · 2026
Implied volatility often collapses after an event resolves — the “IV crush” — deflating your option’s value even if the underlying moved your way. Here’s why IV drops and how to avoid the trap.
Why IV drops
IV reflects expected future movement. Before an event (FOMC, CPI, earnings), uncertainty is high, so IV is elevated. Once the event passes and the outcome is known, uncertainty vanishes — so IV collapses, deflating the volatility portion of every option’s price. IV also drifts lower as fear fades in a calming market.
Why it hurts
If you bought an option before an event (paying inflated IV) and the IV crush offsets your directional gain, you can be right on direction and still lose. The move has to beat both the strike distance and the volatility you overpaid for. This is one of the most common ways new options traders get burned around events.
IV drops when uncertainty resolves — and it takes your option’s value with it. Buy inflated volatility, and the crush charges you for the fear that just evaporated.
How to avoid it
Don’t buy rich pre-event premium expecting a small move to pay — either trade the reaction after IV crushes (cheaper premium), or ensure your expected move beats the priced-in expected move. On 0DTE, IV matters less (low vega), but the pre-event/post-event dynamic still shapes premium. Respect the crush.
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.