How to Trade Earnings with Options

Earnings season is one of the most active and potentially profitable periods in the options calendar. Every quarter, hundreds of companies report results and their options experience dramatic, predictable volatility shifts. For options traders who understand how to navigate these events, earnings announcements are among the most reliable opportunities available.

This article walks through the complete process: understanding the opportunity, choosing the right strategy, sizing correctly, and knowing when to exit.

Why earnings create options opportunities

When a company is about to report earnings, nobody knows the outcome. Will it beat estimates? Miss? Guide higher or lower? That genuine uncertainty causes options buyers to bid up prices in the days before the announcement, inflating implied volatility significantly above its normal baseline.

This IV inflation creates a specific, repeatable dynamic:

Before earnings: options are expensive. IV is elevated. After earnings: uncertainty resolves. IV collapses (IV crush). Options reprice lower.

This pattern plays out consistently across thousands of earnings events every year. Traders who understand it can structure positions to profit from the IV behavior rather than just guessing on direction.

Two broad approaches

Approach 1: Sell premium before earnings (most common)

You sell options before the announcement to collect the inflated IV, then buy them back after IV crushes at a lower price. You profit from the IV collapse regardless of which direction the stock moves, as long as it stays within your defined range.

Strategies: iron condor, short strangle, credit spread (bull put spread or bear call spread).

Best when: implied move is significantly above historical average moves, IV rank is high, you want defined or manageable risk.

Approach 2: Buy options before earnings (directional)

You buy calls or puts (or a straddle) expecting a larger-than-expected move. You profit if the stock moves significantly beyond the implied move. IV crush works against you, so you need a large move quickly to overcome it.

Strategies: long straddle, long strangle, long call or put.

Best when: implied move is well below historical average moves, you have strong directional conviction based on research.

Most active options traders favor Approach 1. The volatility risk premium (IV consistently overstates actual moves) gives sellers a statistical edge in the majority of earnings events.

Step 1: Check the implied move vs historical moves

Before choosing any strategy, open the Stryke Implied Earnings Move tool and compare:

• The current implied move (what options are pricing for the post-earnings move)
• The last 6 to 8 actual earnings moves

If the implied move is significantly above the historical average, sellers have edge. If the implied move is below or equal to historical moves, buyers may have edge.

Example: a stock has an implied move of 10% but has averaged only 6% over the last 8 quarters. Options are overpriced. Selling is statistically advantageous.

Step 2: Confirm IV rank is elevated

Check IV rank in the Options Screener. Before earnings, IV rank should typically be above 50 on a stock approaching its announcement. If IV rank is below 40, the pre-event premium inflation is minimal and the selling edge is weaker.

IV rank above 60 with an implied move well above historical average is the strongest setup for premium selling.

Step 3: Choose your strategy

For premium sellers (the most common approach):

Iron condor: Sell an OTM call spread and an OTM put spread with strikes just beyond the implied move range. Defined risk on both sides. Best for neutral outlook.

Bull put spread: Sell an OTM put spread below the stock. Mildly bullish. Collects elevated put premium amplified by volatility skew.

Bear call spread: Sell an OTM call spread above the stock. Mildly bearish.

For premium buyers:

Long straddle: Buy ATM call and put at the same strike. Profits from large move either direction. The straddle price equals the implied move, so you need the stock to move more than that to profit.

Long strangle: Buy OTM call and put at different strikes. Cheaper than straddle, needs even larger move to profit.

Step 4: Place your strikes

For iron condors and credit spreads, use the implied move as your guide for strike placement.

Place short strikes at or just beyond the 1 standard deviation level (the implied move) for approximately 68% probability of staying in the profit zone.

Example: stock at $100, implied move of 8%. Place the short call at $108 or higher, short put at $92 or lower.

Use delta as a confirmation: short strikes at 0.15 to 0.25 delta are typical for earnings condors.

Step 5: Size the position conservatively

Earnings trades are binary events. Size every earnings position at 1 to 2% of your total portfolio in maximum risk capital.

Even with strong historical edge, any individual earnings event can produce an outlier move. At 1 to 2% risk, a max loss on any single trade is manageable. At 10% risk, one bad earnings can derail an entire month.

Example: $50,000 account. 2% max risk = $1,000 per earnings trade. An iron condor with $5 wide wings and $1.50 credit has a max loss of $350. Maximum 2 condors ($700 total risk) to stay within the limit.

Step 6: Enter the trade 1 to 3 days before earnings

The optimal entry window for earnings premium selling is 1 to 3 trading days before the announcement. This is when:

• IV is at or near its peak for the front-month options
• The term structure is most inverted (near-term IV highest relative to back months)
• You collect maximum premium while leaving minimal time for the position to move against you before the event

Entering too early (more than a week out) means holding through unnecessary days of risk before IV peaks. Entering too late (day-of) means the premium has already been partially consumed and you face the full volatility of the announcement with less cushion.

Step 7: Exit after IV crush, not before

For premium sellers, the ideal exit is immediately after the earnings announcement and the resulting IV crush, typically the morning after the announcement opens for trading.

At this point:

• IV has crushed back to normal levels
• Your short options have lost significant value
• The bulk of your potential profit is already realized

Close the position for a profit, free up the capital, and move to the next trade. Do not hold for the remaining expiry to try to collect the final few dollars of premium. The remaining time carries unnecessary risk for minimal reward.

Related terms: Implied move, IV crush, IV rank, iron condor, straddle, strangle, credit spread, vega

Try it on Stryke: Use the Implied Earnings Move tool to evaluate every upcoming earnings event and the Options Screener to check IV rank and place your strikes.

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