Trading Options Around Earnings
Earnings are the classic options event: big expected moves, elevated implied volatility, and a notorious trap called IV crush. Trading them well means understanding that you are betting not just on direction, but on how the move compares to what the market already priced in.
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Why earnings are tricky
In the days before a report, implied volatility ramps up because the outcome is uncertain, making every option expensive. Right after the release the uncertainty resolves and IV collapses — the IV crush.
This is why a long straddle bought before earnings can lose money even when the stock gaps: the inflated volatility you paid for evaporates the next morning, offsetting the move.
Volatility buyers vs sellers
If you buy a straddle or strangle into earnings, the stock must move more than the premium plus the IV crush for you to profit — a higher bar than it first appears.
If you sell premium (iron condors, credit spreads), you are betting the move stays within the range the market priced, and you profit from the IV crush — with defined risk if you use spreads.
A measured approach
Compare the option-implied expected move to the stock’s typical earnings reaction. If options imply a 9% move but the stock usually moves 4%, selling premium may have an edge; if the reverse, buying may.
Always size earnings trades small — gaps are unpredictable, and defined-risk structures keep a surprise from becoming a disaster.
- IV spikes before earnings and crushes right after.
- Long straddles can lose even on a move, due to IV crush.
- Premium sellers profit from the crush if the move stays contained.
- Compare the implied move to history, and size small.
Frequently asked questions
Why did my call lose money when the stock went up on earnings?
Most likely IV crush — the move was smaller than the implied move, so the collapse in implied volatility outweighed the stock’s rise.
What is the safest way to trade earnings?
Defined-risk strategies like iron condors or credit spreads, sized small, so an unexpected gap cannot cause an outsized loss.
Can I avoid IV crush?
Yes — by selling premium rather than buying it, or by avoiding holding long single options through the announcement.
Implied Volatility ExplainedIron Condor vs StrangleProbability of Profit & Expected Move
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