My Earnings Season Playbook: Trading Volatility Before and After Reports

Earnings season is the most active period in the options market. IV spikes, spreads widen, and the potential for large moves creates both opportunity and danger. Most traders approach earnings with the same strategy every quarter — either always buying straddles or always selling them. I do neither. My approach is conditional on the IV environment.

Here's my complete playbook.

The Two-Mode Framework

My earnings strategy has exactly two modes, selected based on IV rank at the time of trade entry:

Mode 1 — Buy volatility (pre-earnings straddle): When IV rank is below 40 at the time I'm considering the trade.

Mode 2 — Sell volatility (post-earnings credit spreads): After the earnings report, when IV crush creates selling opportunity.

The logic: when IV rank is below 40, options are cheap relative to their own history. If I expect the stock to move significantly — and earnings are among the highest-probability catalysts for large moves — cheap options before a large catalyst are worth buying. When IV rank is above 70, options are expensive, IV crush risk after the report is significant, and I should avoid buying vol.

Mode 1: Pre-Earnings Straddle (IV Rank < 40)

A straddle is the simultaneous purchase of a call and a put at the same strike and expiration. I profit if the stock moves significantly in either direction — the direction doesn't matter, only the magnitude.

My pre-earnings straddle criteria:

1. IV rank below 40 (cheap vol)
2. Entry 10–14 days before earnings
3. Strike: at-the-money (nearest strike to current price)
4. Expiration: the options expiration date immediately after the earnings report
5. Expected move analysis: compare the options-implied expected move with the stock's actual historical earnings moves

How I calculate expected move from options: The options market's expected move for any stock over a specific period can be estimated as: (call premium + put premium) at the ATM strike, for the expiration right after earnings. This is the "straddle price" and represents the market's one-sigma estimate.

If the straddle costs $15 on a $900 stock, the market expects a 1σ move of approximately 1.67%. If the stock historically moves 8% on earnings and the market is pricing 6% — there's potential value in buying the straddle. If the market is already pricing 12% and the stock historically moves 8% — the straddle is likely overpriced.

NVDA Q1 2025 straddle — the winning trade:

NVDA was at $850 heading into its Q1 2025 earnings, reporting on May 28, 2025. I entered the position 12 days before the report.

• IV rank at entry: 35 (below my 40 threshold — straddle is cheap)
• ATM straddle purchased: $850 strike call + $850 strike put, June 6 expiration
• Straddle cost: $58 per straddle
• Expected move implied by straddle: $58 / $850 = 6.8%
• NVDA's historical actual earnings move (last 8 quarters): average 9.3%
• My view: market is underpricing the move by approximately 2.5 percentage points

Outcome: NVDA reported on May 28, beating revenue estimates. Stock gapped 9.3% higher — essentially at its historical average. The straddle was worth approximately $97 at the close after earnings. I closed for a profit of $39 per straddle on a $58 investment = 67% return on the position ($480 profit on an 800 investment — I traded 2 straddles at $8,000 intrinsic).

Wait — let me correct the math precisely: 2 straddles × $58 × 100 = $11,600 cost. Closed at $97 × 100 × 2 = $19,400. Profit: $7,800.

Mode 2: Post-Earnings Credit Spreads

After a company reports, IV collapses — sometimes 40–60% overnight. But there's a short window where IV hasn't fully normalized and credit spreads are still well-priced.

My criteria for post-earnings credit spreads:

1. Stock moved less than the implied expected move (IV crush will be severe — the market overpriced the event)
2. OR stock moved in-line with expectations but no dramatic surprise
3. IV rank still above 50 two days after the report
4. Clear directional thesis based on what the company actually reported

I typically sell put credit spreads post-earnings on companies that beat expectations but whose stock pulled back on "sell the news" dynamics. The thesis: the fundamental picture improved, the stock is temporarily beaten down, the put spread will expire worthless as the stock recovers.

The NVDA Iron Condor — The Losing Trade

In Q4 2024, NVDA was heading into earnings with IV rank at 58. I violated my own rules and sold an iron condor 2 days before the report. (Rule I violated: never sell a condor within 21 days of earnings. Full stop.)

NVDA reported blowout numbers and gapped 12% higher on the call side. The condor was crushed. I took a loss equal to approximately 87% of my max loss. The trade didn't cause permanent damage only because my position sizing was correct — but it was an expensive rule violation.

I documented this in my Bad Trade Journal: "Sold condor into NVDA earnings because IV rank was 58 and I thought premium was attractive. Ignored the 21-day earnings rule. IV rank is irrelevant when the stock is 4 days from a binary event that can gap 10%+. The rule exists for this exact reason."

Comparing Expected vs. Actual Moves

Before any earnings straddle, I build a simple comparison table:

Three of five NVDA straddles in this sample were profitable. The two losers (Q3 2024 and Q1 2024) were cases where the actual move undershot the implied move — IV crush dominated.

The pattern I look for: when the stock's last 6-8 quarters show actual moves consistently larger than implied moves AND IV rank is below 40, I have a strong pre-earnings straddle setup. When the actual moves have been smaller than implied (or mixed), I stay away from pre-earnings long vol.

The Key Discipline: Closing the Straddle Before Earnings

I close any pre-earnings straddle by end of day on the day of the report — before the actual numbers hit. The reason: after close, IV drops dramatically. If I hold through the report, I'm exposed to IV crush on top of the directional risk.

The window to exit: about 1 hour before market close on earnings day. The straddle will have appreciated on IV expansion (the market expects the stock to move, and options get more expensive as the event approaches). I capture that IV expansion even if the actual post-earnings direction is unfavorable.

This rule of closing before the report has added meaningful profitability to straddles that would otherwise have been losers after IV crush.

— Ruslan Averin, averin.com