Earnings season. It comes around every quarter like clockwork, and every time, you see the same pattern: massive moves, blown-up accounts, and people either celebrating or wondering what the hell just happened to their positions.
I’ve been through enough earnings cycles to know this: earnings are where fortunes are made and lost in the options world. The volatility is real, the moves can be explosive, and if you don’t have a plan, you’re basically playing roulette with better graphics.
Let me walk you through what actually works, and what definitely doesn’t.
Why Earnings Are Different (And Why That Matters)
Regular market days, you might see a stock move 1-2%. Earnings day? That same stock could move 10%, 15%, even 20% in a single session. I’ve seen Netflix move 35% overnight on earnings. That’s not a typo.
This creates a unique environment for options traders:
The good: Massive profit potential if you’re right about direction and magnitude The bad: Implied volatility gets insanely expensive before the event The ugly: Even if you’re right about direction, you can still lose money due to IV crush
That last part is what gets most people. They buy calls, the stock goes up 5%, and they’re somehow down on the position. Welcome to volatility crush, it’s real, and it’s spectacular (in the worst way).
The Four Main Approaches to Earnings Plays
1. The Directional Bet (High Risk, High Reward)
This is the straightforward approach: you think the stock is going up, so you buy calls. Or you think it’s tanking, so you buy puts.
When this works: When the move is larger than expected AND in your direction. You need both.
When this fails: Pretty much every other scenario. Stock moves 3% your way but implied volatility crushes 50%? You lose. Stock moves against you? You really lose.
My take after years of doing this: If you’re going to play directional, buy your options at least a week before earnings when IV is cheaper, not the day before. And use a small percentage of your account, like 1-2% max. These are lottery tickets, treat them accordingly.
Real example: I bought AMD calls about 10 days before earnings in Q2 2023. Paid $2.80 per contract when IV was around 60%. By earnings eve, those same contracts were trading at $4.20 and IV was at 110%. I sold half, letting the rest ride. Stock beat and went up 4%, my remaining contracts went to $6.50. If I’d bought the day before earnings at $4.20, I’d have barely broken even on a 4% move.
2. The Straddle/Strangle (Betting on Movement, Not Direction)
Buy both a call and a put. You’re not predicting direction, you’re predicting the stock will move significantly in some direction.
The math: For this to work, the stock needs to move more than what’s already priced into the options. If a strangle costs you $5, and that implies a ~7% expected move, the stock needs to move more than 7% for you to profit.
When this works: Genuinely surprising earnings that cause huge moves. Binary events like FDA approvals or major product launches.
When this fails: Stock moves 5% (decent!), but the market expected 7%. You lose on both legs as IV crushes.
Pro tip: Look at what percentage move is implied by the option prices. If the stock historically moves 12% on earnings but options are only pricing in 8%, that’s interesting. If options are pricing in 15% and the stock usually moves 8%, stay away.
3. Credit Spreads (Betting Against Extreme Moves)
This is the opposite approach: you’re betting the stock won’t make an enormous move. You sell premium (credit spreads) and hope IV crush works in your favor.
Example: Stock is at $100, earnings tomorrow. You sell a $95/$90 put spread for $1.50 credit. You’re betting the stock won’t fall below $95. If it stays above $95, you keep the entire $150 per contract.
When this works: Most of the time, actually. Stocks usually move less than the most extreme scenarios priced in. IV crush helps you because you’re short premium.
When this fails: The stock actually does make that huge move. If it gaps to $85, your $5-wide spread loses the full $5, you keep your $1.50 credit, net loss of $3.50 per spread.
Risk management is critical here: Don’t sell spreads so close to the current price that a normal earnings move blows through your short strike. Give yourself buffer room.
4. Calendar Spreads (The Sophisticated Play)
Sell a short-dated option expiring right after earnings, buy a longer-dated option at the same strike. You’re trying to capture the IV crush on the short option while maintaining exposure with the long option.
The theory: The near-term option has inflated IV due to earnings. After earnings, that option loses value from both time decay and IV crush, while your longer-dated option holds value better.
When this works: Stock doesn’t move much, IV crushes hard on the front-month option, and you profit from the decay differential.
When this fails: Stock makes a massive move, and both options gain/lose significant value, overwhelming the IV crush benefit.
Honest assessment: This is a more advanced strategy. If you’re new to earnings plays, start with something simpler.
The Earnings Calendar Strategy (My Personal Approach)
Here’s what I actually do during earnings season, after learning expensive lessons over the years:
Three weeks before earnings-heavy weeks: I scan for setups. Look at which stocks have earnings coming up, what the implied move is, what the historical move has been.
1-2 weeks before: If I’m playing directional, I enter positions now while IV is lower. Not the day before, that’s when IV is at its peak.
Earnings day/after: I’m usually flat or very light. I might hold one or two positions through the actual event, but most of my earnings plays are already closed before the announcement.
Day after earnings: This is where I look for opportunities. IV has crushed, and if I have a thesis about where the stock is heading over the next few weeks based on what the earnings revealed, this can be a great entry point for options.
Why this approach? Because I learned that trying to predict exactly what will happen on earnings night is nearly impossible. But I can identify when options are cheap (early) versus expensive (right before earnings) and position accordingly.
Reading the Earnings Tea Leaves
Not all earnings are created equal. Some factors that influence how options behave:
Company history: Does this company regularly beat/miss? How big are the typical moves? Netflix and Tesla are known for wild swings. Procter & Gamble? Not so much.
Guidance matters more than the beat: A company can beat on earnings but lower guidance and still tank. Conversely, a slight miss with raised guidance can rally. Pay attention to what management says about the future, not just the past quarter.
After-hours vs. next-day action: Just because a stock gaps up 8% after hours doesn’t mean it stays there. I’ve seen stocks gap up 10% after hours, only to be red by market close the next day. The real move happens when big money gets involved during regular hours.
Analyst reaction: Sometimes the initial move is wrong, and analysts come out the next morning with upgrades/downgrades that reverse the overnight move. Don’t assume the first move is the final move.
Sector-by-Sector Earnings Playbook
Tech stocks (AAPL, MSFT, GOOGL, META): These tend to have elevated IV before earnings, but they’re also liquid enough that spreads are tight. Expect 4-8% moves typically, though it can be more. Cloud numbers and AI mentions have been driving reactions lately.
High-growth/unprofitable tech (recent IPOs, speculative plays): Insane IV, massive moves possible (15-25%). These are gambling chips, not investments. If you play them, size tiny.
Banks (JPM, BAC, C): Usually more predictable, 2-4% moves. Interest rate environment matters a lot. IV isn’t as crazy, which means you’re not paying as much premium, but you’re also not getting 20% moves.
Retail (WMT, TGT, AMZN): Consumer spending data makes these interesting. Can move 5-10% on earnings. Holiday quarter (Q4) earnings are especially important.
Healthcare/Biotech: Depends on the company. Big pharma is usually stable (2-4% moves). Small biotech with FDA decisions or trial results? Could go 50% either way. Know which one you’re trading.
The Wheel Strategy During Earnings Season
Here’s a strategy that doesn’t get talked about enough: using earnings season to run the wheel on stocks you want to own anyway.
The setup: Find a quality stock you’d be happy to own at a lower price. Wait until just before earnings when IV is elevated. Sell cash-secured puts at a strike below current price.
What happens:
- Stock stays flat or goes up? You keep the premium, which is higher than usual due to elevated IV.
- Stock drops but not below your strike? You keep the premium.
- Stock drops below your strike? You get assigned the stock at a price you were willing to pay anyway, plus you keep the premium.
Example: Microsoft is at $380, earnings in 2 days. You sell the $365 put expiring in a week for $6 (IV is elevated).
- MSFT stays above $365: You keep $600 per contract
- MSFT goes to $360: You buy 100 shares at $365, your effective cost basis is $359 (because you collected $6). Not terrible.
This works best with stocks you actually want to own long-term, not meme stocks you’re hoping will moon.
Position Sizing: The Unglamorous Truth
I don’t care how confident you are about an earnings play, don’t bet big. Here’s why:
Even the companies themselves don’t always know how the market will react to their earnings. I’ve seen “great” earnings reports get sold off. I’ve seen “disappointing” reports rally. The market is not always rational in the short term.
My rule: Individual earnings plays get 1-3% of account size, max. If I’m running multiple earnings plays in the same week, total exposure doesn’t exceed 10% of account size.
Why so conservative? Because I’ve had winning streaks of 7-8 earnings plays in a row, gotten cocky, sized up too big on play #9, and given back all those gains in one bad night. Humility is expensive to learn.
The Week-Of Checklist
If you’re going to trade earnings, here’s your pre-flight checklist:
✅ Know the date and time – Before or after market close matters. After-hours moves can be wonky with lower liquidity.
✅ Check the implied move – What are options pricing in? Compare to historical moves.
✅ Review historical earnings reactions – Pull up a chart and look at what happened the last 4-8 quarters.
✅ Understand what analysts expect – Not just EPS and revenue, what are the key metrics for this company? (For TSLA it’s deliveries, for NFLX it’s subscriber growth, etc.)
✅ Have an exit plan – Before you enter, know when you’re taking profit and when you’re cutting losses. Write it down.
✅ Check your position size – Is this amount of money one you can afford to lose entirely? If not, size down.
What Not To Do (Trust Me On These)
Don’t hold weekly options through earnings “just to see what happens” – That’s not a strategy, that’s hope. Hope is not a trading plan.
Don’t assume the first move is the right move – After-hours reactions can completely reverse by the next day.
Don’t ignore the broader market – A great earnings report during a market crash still might not save your calls.
Don’t play earnings on stocks you know nothing about – Just because your buddy made money on some random biotech doesn’t mean you should blindly copy the play.
Don’t revenge trade – Lost money on Monday’s earnings play? Don’t immediately jump into Tuesday’s to “make it back.” That’s how you turn one loss into three.
The Realistic Expectations Talk
Let’s be honest: most people lose money trying to trade earnings. The IV crush is real, the moves are unpredictable, and even when you’re right, the profits might be smaller than expected.
But, and this is important, earnings season also provides some of the best opportunities in options trading if you approach it intelligently:
- You can enter positions early when IV is low
- You can take profits before the actual event
- You can sell premium to others who are paying up for event risk
- You can find post-earnings opportunities when IV is depressed
The key is having a plan, managing your risk, and accepting that you won’t catch every big move. You don’t need to. A few good earnings plays per quarter, properly sized, can meaningfully boost your returns.
Just don’t try to hit a home run every time. Singles and doubles add up. Striking out while swinging for the fences every at-bat? That’s how you blow up your account.
Your Earnings Season Game Plan
If you’re ready to start trading earnings more systematically, here’s the simplified version:
- Make a calendar – Know when major earnings are happening. Plan around them.
- Start small – One or two positions at first, tiny size.
- Track your results – Keep a journal. What worked? What didn’t? Why?
- Focus on setups, not predictions – You’re not trying to predict the future, you’re finding favorable risk/reward setups.
- Learn from every trade – Win or lose, extract the lesson.
Earnings season will keep happening. The opportunities will keep coming. The question is: are you going to approach it with a plan, or are you going to keep hoping that this time will be different?
Trading options around earnings is inherently risky and not suitable for all investors. Past performance doesn’t guarantee future results. This guide is educational and should not be considered personalized investment advice. Always understand the risks before trading.