Earnings Options Strategy: The Game Traders Love and Fear
If you've ever watched a stock the night before earnings, you know the vibe:
- Everything feels a bit electric
- A bit reckless
- And very, very tempting
Earnings season is basically the Super Bowl for option traders:
- Lots of hype
- Lots of volatility
- Lots of regret if you pick the wrong side
Let's talk about what an earnings options strategy actually is, why traders obsess over it, and how you can approach it without feeling like you're blindfolded on a roller coaster.
The Big Idea Behind Earnings Options Plays
Here's the blunt version: you're betting on movement, not direction.
That's the part people forget.
I can't count how many times I've heard, "I knew they would beat earnings" followed by "…so why did my calls get crushed?"
Because the market already priced in the excitement.
It does that. And it's ruthless about it.
The earnings strategy playbook starts with a simple reality: the stock doesn't need to go the way you think. It needs to move more than the market expected.
That's the game.
Volatility: The Invisible Force
If you're like me, your first few earnings trades felt like the market was gaming you personally.
- You buy a call.
- Earnings are good.
- The stock goes up.
- Your option still dies.
It just feels unfair.
But here's what's really happening:
- Before earnings, implied volatility spikes. Everyone expects a big move.
- After earnings, that volatility collapses, no matter what the stock actually does.
- That crash in volatility can wipe out the value of your option faster than you can say "wait, what?"
So when people talk about an earnings options strategy, they're really talking about how to handle this volatility dance.
Side note: it still blows my mind how aggressively IV drops.
Every. Single. Time.
The 3 Most Common Earnings Options Plays (And When They Make Sense)
You'll see traders argue about these all over the internet.
And honestly they all work in the right context.
1. Buying Premium: The Pure Gamble
Options Strategy: Calls, puts, or straddles.
The idea is simple: the stock will move more than expected.
Why traders like it:
- Unlimited upside if the stock explodes
- Cheap lotto-ticket energy
Why traders hate it:
- IV crush is brutal
- You can be "right" and still lose money
When it makes sense:
- You think the market massively underestimated the move
- Or you're intentionally playing long-shot momentum
2. Selling Premium: The "Be the House" Setup
Options Strategy: Credit spreads, iron condors, covered calls.
You're betting the stock won't move that much.
Why traders like it:
- Volatility collapses help you
- High probability setups
Why traders hate it:
- Blows up fast if the stock gaps
- Requires actual risk management (the thing most traders skip)
When it makes sense:
- Earnings usually produce "meh" moves for that stock
- The expected move is already huge and feels unrealistic
3. Direction + Hedge: The Adult Version
Options Strategy: Have a directional bias, but hedge with structure.
Think:
- Call spreads
- Put spreads
- Calendars
- Diagonals
This is the trader's version of wearing a helmet. Still fun. Less stupid.
When it makes sense:
- You think you know direction
- But you also respect the randomness of earnings
The Expected Move: Your North Star
If you take only one thing from this article, let it be this:
Check the expected move.
The expected move is basically the market's guess at how far the stock might jump after earnings. You'll find it priced directly in the options chain.
If you're buying premium, you need a move bigger than that.
If you're selling premium, you need a move smaller than that.
Simple. Not easy.
And yes you can use our Options Profit Calculators to model these setups before you commit. Seeing numbers makes it a whole lot less stressful.
Is There a "Best" Earnings Options Strategy?
Short answer: no.
Longer answer: there's a best strategy for your goal.
- If you want thrill? Buy premium.
- If you want consistency? Sell it.
- If you want the grown-up version? Trade spreads.
Earnings trades aren't about predicting the company.
They're about understanding volatility, expectations, and how options actually behave under pressure.
Once that clicks, earnings season starts to feel less like gambling and more like controlled chaos. In a good way.
Final Takeaway
Earnings options strategies reward traders who understand one thing: the biggest risk isn't direction.
It's expectation.
Get that right, and you stop fighting the game.
You start playing it.
And you'll make better decisions the next time your favorite stock reports earnings and the entire chain lights up like a Christmas tree.
P.S. Yes, earnings trading is still stressful. That doesn't really go away.
