Topic
Earnings
An earnings report is a scheduled gap. Find the date, size the position for the move, and check what the options market has already priced in.
The earnings calendar is the one piece of the future a trader can read in advance. It gives the date, whether the date is confirmed, and whether the report lands before the open or after the close. A position held through that moment can open far beyond its stop, so the size of the position matters more than the quality of the setup.
Size any position you intend to hold through a report with the gap in mind; the position size calculator has a gap line for exactly that.
Options buyers face a second problem at the same moment. Implied volatility climbs into a report and falls away once the numbers are out, so a call bought the day before can lose money even when the stock rises. The checklist and the case study show how to plan the week: which reports land before the open or after the close, what move the straddle implies, and what the position loses if the stock opens that far away.
Strategies
Verdict
Buying Calls Before Earnings: Paying for a Move Already Priced InBuying calls into a report pays only when the move beats what the option already prices; for an ordinary move, a spread or the shares cost less.
Case study
Case Study: A Swing Trade That Ran Into an Earnings DateRecord the next earnings date on every entry, and size any position held through a report for the gap, not the stop.
Checklist
Earnings Season Checklist: What to Check Before a Company ReportsBefore any report, price the gap in dollars at the implied move, then decide to hold, cut or step aside on purpose.
Guides
Definitions
- IV crush
The sharp fall in an option's implied volatility once an expected event, usually an earnings report, has passed and the uncertainty priced into the option is gone.