I'll create a short strangle position 2-4 weeks before the earning release date by selling both out of money call and put options with the expiry date just a few days after the release date. That timing the IV is at it highest thus both legs can earn good premium. Strike price should be around 1-2 sigma for above the market price for call option and 1-2 sigma for put option- that's to balancing the return and provide room for price fluctuations before strike price been hit.
After earning released, either call or put option will be in the money, then can close the position by buying back the options to take the advantage of reduce the IV and theta value. Both factors will cause option prices to decrease.
As regards to the risk control, I suggest to have the equal underlying equity for call option and prepared fund for put option. Just in case one leg on the extreme side.
This strategy works best with high volatility companies as IV will have tremendous impact on the option premiums.
But after all, the key remains to pick the good underlying securities. Only for those companies which I don't mind to hold their stocks and not worry they will go bankrupt next day.
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