Trading Earnings with Options
Learn to profit from earnings announcements with proven options strategies that account for IV crush and price gaps.
What is Trading Earnings with Options?
Trading Earnings with Options Earnings trading involves positioning options around quarterly announcements when implied volatility peaks and stocks often make significant moves.
Understanding IV crush, historical move patterns, and proper strategy selection is crucial for consistent earnings trading profits.
Event Characteristics
Strategies by Market Outlook
📈 Bullish Strategies
📉 Bearish Strategies
⚖️ Neutral Strategies
The Expected Move Formula
Calculate the market's expected move: Expected Move = ATM Straddle Price / Stock Price
If the straddle costs 8% of the stock price, the market expects an 8% move. You need a larger move to profit on long straddles.
Sell Premium When:
- IV rank is very high (>80%)
- Stock historically moves less than expected
- You expect the stock to stay range-bound
Buy Premium When:
- IV is relatively low for the stock
- Stock has history of exceeding expected moves
- You have a strong directional conviction
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Frequently Asked Questions
What is IV crush in earnings trading?
IV crush is the rapid decline in implied volatility immediately after an earnings announcement. Because IV rises before earnings due to uncertainty, it collapses once the news is known. This can cause options to lose 30-70% of their value overnight.
Should I buy or sell options before earnings?
Selling options benefits from IV crush but has risk if the stock moves more than expected. Buying options requires a move larger than the implied move to profit. Most professionals sell premium before earnings due to the statistical edge from IV crush.
How do I calculate the expected move for earnings?
The expected move equals the ATM straddle price divided by the stock price. For example, if a stock is $100 and the ATM straddle costs $8, the expected move is 8%. You need the stock to move more than this to profit on long volatility plays.
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