To The Moon

Earnings season is here, and many traders want to use options to catch big moves. But earnings options are exactly where most people get burned: they get the direction right, yet still lose money. Today we'll cover two key things: how to properly estimate earnings-related volatility, and how to understand IV Crush — "the buyer's enemy and the seller's friend."

Part 1: Volatility Is Not a Gut Feeling

How much a stock will move after earnings isn't something you need to guess — the market has already priced in the expected range.

The calculation is straightforward, using the ATM Straddle:

Straddle Price ≈ At-the-Money Call Premium + At-the-Money Put Premium

Market's Expected Move ≈ Straddle Price ÷ Current Stock Price

This is your baseline: only when the actual price move exceeds this number can you call it a genuinely big move, and only then can short-dated option buyers have a real profit opportunity. Conversely, if the actual move falls short of this number, short-dated buyers will most likely lose money.

Part 2: IV Crush — The Buyer's Enemy, The Seller's Friend

Before earnings, implied volatility (IV) rises far above normal levels. Once earnings are released and uncertainty disappears, IV drops sharply.

Since IV carries significant weight in option pricing, a drop in IV will cause both Call and Put to lose substantial value. This means:

• Even if the stock price doesn't move after earnings, short-dated options will still drop significantly due to the IV collapse;

• Even if you get the direction right, as long as the move is smaller than what the market had priced in, your Call or Put will still lose value because the volatility premium deflates.

This is exactly why both Calls and Puts become expensive before earnings — you're paying for that expensive volatility premium.

Part 3: Short-Dated or Longer-Dated?

Earnings IV has the greatest impact on short-dated options, such as those expiring in the current or following week.

Some may ask: wouldn't longer-dated options be better? They can work, but they cost more, and if you're wrong on direction, the losses are larger. The choice depends on your confidence level and capital.

Part 4: A Complete 3-Step Framework for Choosing a Strategy

Step 1: Estimate the move — use the Straddle to determine the market's expected volatility range.

Step 2: Set your direction — combine your own analysis to decide whether you're bullish, bearish, or neutral.

Step 3: Choose your tool based on confidence level:

• If you're convinced of a sharp move that far exceeds market expectations → buy OTM Calls/Puts (cheaper, higher leverage), go for a big swing. The risk is that it could go to zero.

• If you have a specific target price in mind (e.g., you expect the stock to rise/fall to a certain level) → use a spread strategy:

  • Bearish: Bear Put Spread (buy higher-strike Put + sell lower-strike Put);

  • Bullish: Bull Call Spread (buy lower-strike Call + sell higher-strike Call).

  • The short leg recovers part of the premium paid, hedges against some of the IV Crush, lowers your cost, and offers better risk-reward — but your profit is capped.

• If you want something as stable as going long/short the stock itself → buy deep in-the-money options (Delta near ±1): time value and IV make up a smaller portion of the price, making them most resistant to IV Crush — but they cost more and offer lower leverage.

Don't forget to calculate your breakeven point: For a long Put, breakeven = Strike Price − Premium Paid. The stock must fall below this level for you to start making a profit. (For a long Call, it's the opposite: the stock must rise above Strike Price + Premium Paid.)

Part 5: How to Read Large Option Trades (OI & Flow)

You can check recent large option trades on Tiger's desktop platform — there's usually heavy betting activity before earnings. A few key points:

• Trades with notional value in the hundreds of thousands are more speculative in nature and should be taken with a grain of salt; those above $1 million can carry slightly more weight.

• Don't rely on large trades alone — always combine them with fundamentals and the volatility range.

• Since heavyweight tech stocks have a big impact on the broader market, also check the direction of large option trades on SPY and QQQ for context.

• Cross-reference large order data from peer companies and upstream/downstream firms for mutual verification.; if those companies have already reported earnings, their trades carry more weight.

• Even multi-million dollar trades can be wrong — never follow them blindly.

Part 6: When to Close — The Most Critical Part of Earnings Trading!

Close at the open, regardless of whether it's up or down — especially for strategies that rely on IV Crush.

Be clear on what your trade is designed to capture: as soon as earnings are released at the open, everything that was supposed to happen (direction, IV collapse) gets priced in almost instantly. Take your profit and close immediately — don't get greedy, and don't let time and volatility eat into your gains.

⚠️ The above is an educational guide on earnings-season options analysis and strategy. All numbers used are hypothetical and for illustrative purposes only. This does not constitute investment advice. Earnings are high-risk events; buyers may lose their entire premium, and sellers may face even greater risks. Always practice proper risk management.