Earnings Trades - Strategy for Earnings Events

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Reference

Earnings trades are strategies designed to profit from the volatility spike around when companies report quarterly earnings.

The Setup

Companies announce earnings once per quarter. Before earnings, IV spikes (traders expect big moves). After earnings, IV collapses (uncertainty resolved).

Strategies

Sell Premium (Best): Sell calls or puts into the IV spike before earnings. Collect expensive premium. Profit if stock doesn't move much or IV crushes.

Straddles: Buy a straddle before earnings (call + put ATM). Profit from big moves. But watch for IV crush.

Earnings Spreads: Sell wider spreads to collect more premium while capping risk.

Timing

Ideal: Enter 5-10 days before earnings when IV is rising but option prices aren't insanely expensive yet.

Worst: Buy options the day before earnings. IV is at peak, premium is at maximum. Most likely to lose.

Exit Timing

Sellers: Close at 50% profit, usually 2-3 days before earnings
Buyers: Exit immediately if stock moves big (don't wait for full profit)

Key Rules

Don't buy options the week of earnings (too expensive)
Sell premium into the spike (best risk/reward)
Exit before earnings (don't let big gap move destroy you)
Expect IV crush after earnings