How to size earnings trades
Earnings trades break the normal rules of position sizing. A stock can move far more overnight on an earnings gap than it typically moves in a week of regular trading, and that changes how much capital should ever be at risk in a single earnings play. Getting position sizing wrong around earnings is one of the fastest ways to turn a well-researched trade into an account-damaging one.
Why earnings trades need different sizing rules
Outside of earnings, a stock's daily moves are roughly predictable within a range implied by its normal volatility. Around earnings, that range widens sharply because the market is pricing in a binary, overnight event. The stock's implied move for earnings, which you can check on Stryke's Implied Earnings Move tool, tells you what the options market expects the stock to move by in either direction after the report.
If a $100 stock has an implied move of 8% into earnings, that means a realistic overnight range of $92 to $108, and sometimes it goes well beyond that. A position sized for a normal trading day will be sized wrong for that kind of range.
Step one: know the implied move before you size anything
Before deciding how many contracts or spreads to trade, check the implied move. This single number should drive your entire sizing decision, because it tells you the market's own estimate of overnight risk. A wider implied move means a smaller position, all else equal.
Step two: define max loss in dollars, not contracts
Thinking in number of contracts is a common mistake. Two traders can each buy "5 contracts" and have wildly different risk depending on the strategy and strikes chosen. Instead, calculate the maximum dollar loss for the specific structure you're using, whether that's a defined-risk spread, a straddle, or a covered position, and size based on that dollar figure as a percentage of your account.
A common guideline among earnings traders is to risk no more than 1% to 3% of account value on any single earnings event, given the binary nature of the outcome. This is tighter than typical position sizing for non-earnings trades.
Step three: account for IV crush separately from directional risk
If you're buying premium into earnings (a straddle or strangle, for example), you're exposed to two separate risks: the stock moving less than expected, and implied volatility collapsing after the announcement even if the stock does move. IV crush can erode a position's value even on a correct directional call if the move wasn't large enough to outpace the volatility drop. Size buying strategies smaller than you might otherwise, since this is effectively two risks stacked into one trade.
If you're selling premium into earnings, IV crush works in your favor, but the gap risk is now undefined unless you're using a spread. Defined-risk structures like iron condors or credit spreads make sizing far more predictable because the max loss is capped at trade entry.
Step four: don't stack correlated earnings trades
It's tempting to run several earnings trades in the same week, especially during peak earnings season. But if those stocks are correlated, whether by sector, by broad market sensitivity, or by reacting to the same macro data, a single bad week can compound losses across multiple positions simultaneously. Treat correlated earnings trades as a combined position for sizing purposes, not as separate, independent bets.
A simple sizing framework
- Pull the implied move for the stock's upcoming earnings date.
- Choose a defined-risk structure where possible, so max loss is known in advance.
- Calculate max loss in dollars for one unit of the trade.
- Cap total risk at 1% to 3% of account value per earnings event.
- Check for correlation with any other earnings trades open that week and size down if needed.
Frequently asked questions
Should I size earnings trades the same way as regular trades?
No. Earnings trades carry overnight gap risk that regular trades don't, so most traders size them smaller as a percentage of account value.
Does a defined-risk spread remove the need to size carefully?
No. A defined-risk spread caps the maximum loss on a single trade, but sizing still matters for how many of those spreads you put on relative to your total account.
How do I check a stock's implied move before earnings?
Stryke's Implied Earnings Move tool calculates this directly from current option prices so you can see the market's expected range before placing a trade.
Related: Implied move, IV crush, How to trade earnings with options
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