Earnings Season and Options: When to Trade and When to Stay Out
Earnings season is the most dangerous time for options buyers — and one of the most profitable times for traders who understand the dynamics. The same event that can double your money can also wipe it out completely, regardless of whether you predicted the direction correctly.
The IV Crush Problem
When a company is approaching its earnings announcement, options premiums expand dramatically. Traders are uncertain about the outcome, so they bid up option prices to reflect the expected move.
The moment earnings are announced — regardless of outcome — that uncertainty collapses. IV drops back to normal levels instantly. Options premium deflates. This is IV crush.
The devastating scenario: You buy a call before earnings, correctly predict the company will beat expectations, the stock rises 5% — and your option still loses value. The IV crush exceeded the Delta gain from the stock move.
This is not a theoretical risk. It happens regularly. It's particularly brutal on weekly options (very short DTE) purchased right before earnings.
The Expected Move: What the Options Market Is Pricing In
The options market itself tells you what move it's pricing in for earnings. The formula:
Expected Move ≈ ATM Straddle Price (call + put at same strike)
If the ATM call and put both cost $2.00, the market expects roughly a ±$4 move on earnings. If the stock moves less than $4 in either direction, both options lose value due to IV crush.
Before trading earnings, always calculate the expected move and ask: "Do I believe the actual move will exceed what the market expects?" If not, you're playing against the house.
When We Do Trade Around Earnings
TarsierAlpha's Catalyst Play strategy sometimes involves earnings — but only when specific conditions are met:
Post-earnings entry (our preference):
After a company reports earnings and the stock sells off sharply on a temporary disappointment, IV collapses back to normal, premiums are cheap, and the stock is oversold. This is the best of both worlds — no IV crush risk, low entry cost, and often a clear technical setup.
The PYPL trade was essentially a post-disappointment setup. The stock had been sold down heavily. IV was low. Premiums were cheap. The bounce from oversold was explosive.
Pre-earnings entry with long DTE:
If you believe a company is fundamentally undervalued heading into earnings, buying options with 90+ days to expiration several weeks before earnings reduces IV crush risk significantly. You're not buying a weekly; you're buying time.
The rule: Never buy short-dated options (under 30 DTE) immediately before an earnings announcement unless you have a very specific, high-conviction thesis about the magnitude of the move.
The Earnings Calendar: Your Weekly Ritual
Every Sunday evening, pull up the earnings calendar for the upcoming week (available on Finviz, Earnings Whispers, or directly on TradingView like the APH chart's earnings markers).
Check:
- Does any stock on your watchlist report this week?
- What is the expected move (straddle price)?
- Are you currently holding options on that stock?
- If yes — should you exit before earnings or hold through?
Most experienced traders either close positions before earnings (taking whatever profit/loss exists) or make a specific decision to hold through earnings with full understanding of the IV crush risk.
"Hoping for the best" through earnings is a beginner move. Intentional decision-making is not.
Related: VIX and IV Explained | Managing Losing Trades | Pre-Market Routine