How do you trade options around earnings announcements?

Earnings trading requires understanding the expected move (derived from the ATM straddle), historical accuracy of those estimates, and IV crush risk. Sellers profit when actual moves are smaller than implied; buyers profit when moves exceed expectations. Common strategies include selling iron condors at the expected move range, buying straddles when historical moves consistently exceed implied, or trading post-earnings IV normalization.

What is the implied expected move for earnings?

The implied expected move for earnings is calculated from the weekly straddle price spanning the earnings date, minus the time value of a non-earnings week. This isolates the earnings-specific volatility premium. For example, if the straddle implies a 5% move but the stock's average earnings move is 7%, the options may be underpricing the event risk.

What is IV crush and how does it affect earnings trades?

IV crush is the rapid decline in implied volatility that occurs immediately after an earnings announcement. Before earnings, uncertainty inflates IV because the outcome is unknown. After the announcement, uncertainty resolves and IV drops sharply — often 30-60% overnight. Options buyers must overcome this IV decline with a sufficiently large directional move, which is why most long premium earnings trades lose money.

How accurate are options-implied earnings moves?

Options-implied earnings moves tend to overestimate actual moves about 60-70% of the time across the broad market. However, accuracy varies significantly by stock — some names consistently move more than implied (making straddle buys profitable), while others consistently move less (favoring straddle sells). Analyzing a stock's historical actual vs implied earnings moves is critical before selecting a strategy.