Earnings announcements are quarterly events where publicly traded companies report their financial results. These events are among the most impactful for options traders because they cause two simultaneous effects: a potential large price move in the stock AND a sharp spike in implied volatility beforehand followed by an IV crush afterward.
Earnings and the Wheel Strategy: Selling a cash-secured put into an earnings announcement is a high-risk maneuver. If the company reports bad results, the stock can gap down 10-30%, immediately making your short put deep ITM. The IV crush after earnings will reduce the option's time value, but the intrinsic value from a large down move can far outweigh this.
The Two Schools: Some traders specifically sell options into earnings to capture the IV spike and subsequent crush. Others (most wheel strategy purists) strictly avoid selling options in the week before earnings to prevent getting destroyed by a binary event.
Examples of Earnings (Earnings Announcement Risk) in Action
- 1META drops 15% after reporting disappointing ad revenue — a short $400 put becomes deeply ITM, potentially creating a $6,000+ loss per contract.
- 2Selling a CSP the week before earnings and the stock jumps +12% — the put expires worthless and you collect maximum premium.
- 3IV drops from 90% to 40% after earnings even though the stock only moves 3% — the option seller profits from pure IV crush.