Definition
Volatility Crush vs Volatility Expansion
Volatility crush is a sharp drop in implied volatility after an event, while volatility expansion is a rise in IV before or during one.
Expansion lifts option premiums as uncertainty builds ahead of results, the Budget, or RBI policy, helping option buyers and hurting sellers. Crush is the opposite: once the event passes, IV deflates fast, helping sellers and trapping buyers who paid the inflated premium.
Indian traders position for both around known events on Nifty, Bank Nifty, and stocks — buying volatility (straddles) ahead of an expected expansion and selling it to capture the crush afterward. Tracking India VIX and IV rank helps time these volatility regimes.
Related terms
- VegaVega measures how much an option's premium changes when implied volatility rises or falls by 1%.
- IV CrushIV crush is the sudden collapse in implied volatility — and option premiums — right after a major event passes.
- IV Percentile / IV RankIV rank and IV percentile show where today's implied volatility sits relative to its own range over the past year.
- India VIXIndia VIX is the volatility index that measures the market's expectation of near-term volatility, often called the 'fear gauge'.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.