Sunday 1 Feb 2026. The Union Budget, read out in a special trading session. Nifty closed at 24,825.45, down 1.96% from Friday's 25,320.65. India VIX closed at 15.10, up from 13.63. On Monday it read 13.87, and by Wednesday 11 Feb it read 11.55. The price of waiting for the Budget had simply left the options. That is IV crush, and it is arithmetic, not mood. Below is the arithmetic on two dated NSE chains, and then what it does and does not say about a straddle. Every figure comes from NSE end of day files of 1 Feb 2026 and the days after, so nothing here is live and nothing is a view on the next event.
3By the end you can
- Explain why implied volatility sits higher in expiries that hold a known event and falls once it is out.
- Read the fall in at the money implied volatility across expiries on two dated NSE chains.
- Say why a straddle gains or loses on the move against its price, not on crush alone.
The idea, plainly
What is IV crush?
An option's price is its intrinsic value plus its time value, and time value rises with implied volatility. Implied volatility is a price written in volatility units; the module on historical and implied volatility sets it beside the volatility that follows. So if implied volatility falls and nothing else changes, the option gets cheaper. Vega is the size of that effect: the rupees an option loses for one vol point.
Total variance =
base variance x time
+ event variance
The event adds a lump of variance, and the lump leaves with the event
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Why would implied volatility fall in a single day? Because variance adds up over days. An option that expires after a known event holds the variance of every ordinary day plus an extra lump for the event day. The event can be a results day, the Budget, an RBI policy decision or the counting of votes. Once it is out, the lump is gone, and the option loses it even if the index has not moved. That is IV crush.
Run it backwards and you can read what the market priced. Take the total variance of the expiry that holds the event, subtract the base variance of the same days without it, and what is left belongs to the event day. Its square root is the one day move the market allowed for. The advanced term structure and event variance module does this across expiries.
Why do near expiries fall the most?
The lump is about the same size for every expiry that holds the event. A near expiry has few days to spread it over, so it shows up as a big jump in implied volatility. A far expiry has many ordinary days around it, so the same lump barely shows. When the event is out, the near expiry falls furthest. Before the event the near expiry looks the most nervous, for the same reason.
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Results days, RBI policy days and counting days work the same way. Each date is announced before it happens, which is why it can be priced. What differs is the size of the lump. One stock's results are a small part of an index, and a large part of that stock's own options. The files here hold no results day or RBI day chain, so I draw no number for them. The method carries over unchanged.
Worked example: the Budget of 1 Feb 2026
What did India VIX do?
Start with the index of fear. The line below is India VIX from 12 Jan to 27 Feb 2026.
India VIX rose on Budget day and gave it all back within eight sessions
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It closed at 13.63 on Friday 30 Jan, 15.10 on Budget day, 13.87 on Monday and 11.55 on 11 Feb. That is down 3.55 points, 23.5%, from the Budget day close in eight sessions. I cannot split the fall into "the event is out" and "the sell-off calmed", because Nifty fell 1.96% on the Sunday and rose after. VIX reads the sum. The chain lets me look closer.
Which expiries fell most?
Take the same four Nifty expiries on two evenings and read the at the money implied volatility. At the money is the parity forward for weeklies and the future for monthlies.
The nearer the expiry, the bigger the fall
On Budget day the nearest expiry priced the most movement
Read one more paragraph, 85 words
The 3 Feb weekly fell 3.99 vol points, from 22.01% to 18.02%. The 10 Feb weekly fell 2.47, from 16.72% to 14.25%. The 24 Feb monthly fell 1.90, from 15.04% to 13.14%, and the 30 Mar monthly 0.39, from 12.67% to 12.28%. That fits a lump spread over few days. It also fits the shortest expiry having carried the sell-off of the day before. The chain shows the sum, so I will not claim more than the sum.
What did it do to a straddle?
Take a straddle on the 10 Feb weekly at the 24,800 strike, bought at the settlement prices of Budget day. It cost 511.80 a unit, Rs 33,267 for a lot of 65 units. A day later the same two options settled at 507.80. The change is −4.00 a unit, −Rs 260 a lot. Implied volatility fell and a day passed, yet the straddle lost almost nothing. Nifty rose 1.06%. A long straddle gains when the index moves, and the move paid for the crush. The expected move module reads a straddle price as a range.
- Close of 1 Feb. Nifty at 24,825.45, 9 days to expiry, at the money implied volatility 16.72%. The 24,800 straddle, which was the at the money one, cost 511.80 a unit.
- Close of 2 Feb. Nifty at 25,088.40, 8 days to expiry, at the money implied volatility 14.25%. The same 24,800 straddle settled at 507.80.
Read 2 more paragraphs, 121 words
The at the money straddle of 2 Feb sits at the 25,100 strike and costs 421.00. It is cheaper only because the strike moved up with the index. Nobody booked that as a loss.
Hold the 24,800 straddle to expiry. Nifty closed on 10 Feb at 25,935.15, so the call was worth 1,135.15 and the put nothing. Against 511.80 paid, that is 623.35 a unit, Rs 40,518 a lot, before charges. The shortest expiry makes the same point. On 2 Feb the 3 Feb weekly straddle cost 189.35, 0.75% of the index, after implied volatility had already fallen. Nifty closed on 3 Feb at 25,727.55, a move of 639.15 points, 3.4 times the price of the straddle.
So what happens to options around Budget day and results day?
Three things, in order. Before the event, expiries that hold it carry extra implied volatility, and a straddle on them costs more than on an ordinary day. On the event, the index gaps or it does not, and the value of the straddle follows the gap. After the event, the lump leaves and implied volatility falls, fastest in the nearest expiry. Whether one option gains or loses depends on one comparison: the move that followed against the move the price allowed for. Two cases show the arithmetic and tell nothing about odds. Nothing in a chain says which side of that comparison the next event will land on. The buyer and seller module sets out why a payoff alone does not decide a trade.
The term this section turns on: Straddle
The common mistake
The claim: Buy a straddle before the Budget, because the Budget always moves the market.
The word always is the problem. The price already holds an expected move, so the straddle gains only when the move beats what was paid. And implied volatility is not a one way bet into the event: on this data it had already jumped by the close of the Budget day session and fell the next day. The 24,800 straddle gained Rs 40,518 a lot by 10 Feb, before charges. A straddle bought before an event that moves the index by less than its price loses, crush or not. One Budget in the data shows how the arithmetic works. It tells me nothing about the next one.
Key takeaways
- A known event adds variance to every expiry that holds it.
- When the event is out, that variance leaves the price: IV crush.
- Near expiries carry the lump on fewer days, so they fall most.
- A straddle gains only if the move beats the price paid.
- One Budget shows the mechanics, never the odds of a trade.
- Results, RBI and counting days follow the same arithmetic.
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study