What It Means
IV crush is the sharp drop in an option's implied volatility right after a known event resolves, like quarterly results or a central bank policy announcement. Because IV is priced into the premium, that drop can shrink the option's value fast, sometimes even when the underlying price moves the way a trader expected.
How It Works
Before a scheduled event, IV rises because the market is pricing in extra uncertainty about how big the move could be. Once the event happens and that uncertainty resolves, there's nothing left to hedge against, so IV falls quickly, often within hours. The price component of the premium can still respond to the actual move, but the IV component collapses at the same time. For an option bought mainly to bet on the event itself, that crush can eat into or wipe out gains that a pure price move would otherwise have delivered.
Example
A college student in Patna buys a Nifty call two days before the Union Budget, expecting a rally. Nifty's ATM IV is sitting at 19% that morning, up from its usual 12-13%, because the market is pricing in the event. Nifty does rise on Budget day, but IV drops back to 13% within hours of the announcement. The premium gains a little from the price move but loses more from the IV crush, and the trade ends up roughly flat instead of the clean profit he expected from getting the direction right.
Warning
Buying an option right before a known event to bet purely on the price move, without accounting for IV crush eating the premium at the same time. Even a correct direction call can end up flat or a loss.