Events (information shocks): earnings, RBI/Fed rate decisions, GDP/CPI/jobs data, budget, election results. Before the event → uncertainty is frozen inside option prices. At release → uncertainty collapses into a fact → huge move.
Expiry (deadline pressure): derivatives (futures/options) must be settled on a fixed date. Traders holding those contracts are forced to hedge, roll, or close → mechanical order flow → sharp, sometimes irrational moves.
Options don't just have a price — that price encodes how much movement traders expect. Solving the option's market price for the volatility input gives Implied Volatility (IV).
We want: how far might the price move by the event, according to the option market?
Start from the assumption that 1-year returns have standard deviation σ (annualized IV). Volatility scales with the square root of time because variances of independent daily moves add:
Var(T days)=∑i=1TVar(1 day)=T⋅σday2
Taking square roots:
σT=σdayT
A market shortcut for one option straddle (ATM call + ATM put price) as the expected move:
Expected Move≈0.85×(ATM straddle price)
The 0.85 factor exists because the straddle slightly overstates the true 1-σ move.
Why does volatility scale with T, not T? → Variances of independent steps add; std dev is the square root of variance.
What is IV crush and when does it strike? → Collapse of implied volatility right after a scheduled event resolves uncertainty.
Which two Greeks dominate near expiry? → Theta (decay ∝1/T) and Gamma (huge sensitivity → whipsaws/pin).
You correctly predicted a ±₹40 earnings move and it moved ₹40, but your long straddle lost money. Why? → IV crush drained extrinsic value; the move only matched what was priced in.
Recall Feynman: explain to a 12-year-old
Imagine a shaken soda bottle (the market before news). Everyone is guessing whether it'll fizz. That guessing makes the price of "protection tickets" (options) expensive. The moment you open the cap (the news comes out), the fizz happens once — a big spray (the move) — and then it goes flat. People who bought expensive protection tickets are sad because the ticket is now cheap, even if the fizz was as big as expected. Expiry is like the last minute of a test: the timer forces everyone to scribble answers at once (settle positions), so the room goes crazy right at the buzzer.
Dekho, "volatility window" ka matlab hai market ka woh time slice jab price bahut zyada hilta hai — aur mazedaar baat yeh hai ki yeh time predictable hota hai. Do reasons se aisa hota hai: ek toh events (jaise earnings, RBI/Fed rate decision, budget, election results) jab nayi information aati hai, aur doosra expiry (jab F&O contracts settle hote hain, jaise weekly options ya last Thursday). Event se pehle sabko dar/uncertainty hoti hai, isliye options mehnge ho jaate hain — yani IV (implied volatility) high ho jaati hai.
Ab yahan ek trap hai jo naye traders ko maar deta hai: log sochte hain "bada move aayega, chalo option kharid lo." Lekin event ke baad IV crush hota hai — matlab uncertainty khatam, option ka price dhadaam se girta hai. Aap direction sahi bhi bol do, phir bhi paisa doob sakta hai, kyunki jitna move expected tha woh already price mein tha. Isliye expected move nikalna seekho: EM≈S0×σ×T/365. Yaad rakho — volatility root of time ke saath badhti hai, linear nahi. 4 din ka move sirf 2 guna hota hai 1 din se, 4 guna nahi.
Expiry window aur bhi khatarnaak hai. Jaise-jaise expiry paas aati hai, theta (time decay) 1/T ke hisaab se tez hota jaata hai — aakhri din option ki extrinsic value pighal jaati hai. Saath hi gamma bahut bada ho jaata hai, isliye chhote se index move par option 300-500% swing karta hai, aur "max pain" ki wajah se price kisi strike par pin ho jaata hai. Log sochte hain "expiry day option sasta hai, safe hai" — galat! Yeh sabse high-risk window hai.
Simple mantra: "EVEnts crush, EXpiry rush." Event ho toh IV crush se bacho (naked long option mat kharido, spreads use karo), aur expiry par theta/gamma ke whipsaw se sambhal ke chalo. Timing samajh gaye toh aadha kaam ho gaya.
