The Statistical Edge of Earnings Season: Turning Volatility Into Opportunity

Each quarter, earnings season arrives with the same familiar rhythm: uncertainty, speculation, and, most importantly, volatility. Next week marks the opening round once again, with the big banks stepping up first: JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC).

For the first time, I’ll be sending out my Top Potential Earnings Options Plays in Sunday’s edition of The Option Premium. As many of you already know, my goal isn’t to predict the next big post-earnings move. It’s to trade the probabilities that surround those moments of uncertainty, while simultaneously, in most cases, taking advantage of volatility crush.

Why Earnings Volatility Creates Opportunity

Before every announcement, options prices rise sharply. That’s because traders and institutions start hedging or speculating, both of which drive up demand for contracts. This increase in demand inflates implied volatility (IV), and inflated IV means one thing for premium sellers: richer pricing.

But volatility is fleeting. Once earnings are released, the uncertainty evaporates and IV collapses, often overnight. Capturing that volatility crush is what gives earnings trades their edge.

A Quantitative, Not Predictive, Approach

I’m not trying to outguess the market’s reaction. I’m simply trading the math.

Each setup begins with a probability-based framework:

• Identify liquid underlyings with high IV Rank or IV Percentile.

• Measure the expected move based on current options pricing.

• Position trades so the short strikes fall outside that expected range.

This approach is rooted in statistics, not storytelling. Over time, the law of large numbers smooths out short-term randomness. A single trade might surprise you, but over dozens of setups, the probabilities tend to assert themselves.

That said, sequence risk, a string of outlier moves in a row, can test even disciplined traders. Managing position size is the best defense. It’s the difference between participating in opportunity and getting wiped out by variance.

One of My Favorite Structures For Option Plays Around Earnings: The Iron Condor

When it comes to earnings, few strategies balance reward and control as effectively as the iron condor.

The idea is simple:

• Sell an out-of-the-money call spread (bear call spread).

• Sell an out-of-the-money put spread (bull put spread).

• Collect premium from both sides while defining risk on each.

The key is to position the spreads outside the expected move. The further you go from the expected range, the higher your probability of success, though you collect slightly less premium.

Let’s use the upcoming earnings announcement in Citigroup (C) as an example. As you can see below, it is due to announce earnings after the closing bell on October 14th.

The stock is currently trading near $98, with an expected move of approximately ±$6 ($104 to $92) heading into the October 17th expiration, the first Friday following the earnings announcement. Selling a call spread above $104 and a put spread below $92 sets up a trade that profits if C stays within that zone.

• Bear Call Spread: Sell 106C / Buy 111C → 86.79% probability of success.

• Bull Put Spread: Sell 90P / Buy 85P → 86.55% probability of success.

Combined, that creates a 90 to 106 iron condor, with about $0.70 in premium on a $16-wide spread, yielding roughly 16.3% potential return and 86%+ statistical odds of staying within range.

This is what it means to trade probabilities, not predictions.

Keep in mind that this setup will evolve as the underlying price shifts, and implied volatility will likely rise further as the earnings date approaches. Still, it provides a useful early framework for what to expect from this particular trade.

Looking back at Citigroup’s historical earnings reactions since 2006, the stock has averaged a move of about 0.5%, with only a handful of outliers reaching slightly above 10% or below 6%. Understanding how a stock typically behaves around earnings helps determine whether the probabilities align with our setup, or whether it’s best to stand aside. In this case, our chosen short strikes at 106 and 90 provide roughly an 8.2% cushion on both sides, positioning the iron condor comfortably outside the range Citigroup has experienced over the past 19 years.

The Math Behind the Edge

Research shows that roughly 80% of stocks move less than their expected move after earnings. That means the market tends to overprice volatility, a recurring inefficiency that options sellers can systematically exploit.

The moment earnings are released, implied volatility collapses, and the short premium decays rapidly. That’s the edge. You’re not betting on direction, you’re selling time and uncertainty at a premium.

The Hidden Variable: Position Sizing

Because earnings trades are short-lived and event-driven, you rarely get the chance to adjust. That’s why sizing matters far more than entry timing or strike precision.

Each position should represent only a small fraction of your portfolio, often 1 to 3% of total capital. This ensures that even when the occasional large move breaks your range, it’s just one small data point in a long series of trades.

That’s how professional traders survive randomness and let the math work over time.

Putting It All Together

To trade earnings effectively:

1. Screen for liquidity and IV Rank. Avoid illiquid names or low volatility environments.

2. Use the expected move as your map. It defines your probability range.

3. Sell premium outside that range. The further, the safer.

4. Keep trades small and consistent. Let the statistics, not your emotions, drive results.

5. Embrace the volatility crush. It’s your built-in profit engine.

Throughout this earnings season, I’ll be sharing new setups and research each week, along with full trade examples, performance breakdowns, and risk-management discussions. The goal isn’t to find a magic trade. It’s to apply a repeatable process that thrives on structure and discipline.

When traders move from guessing to measuring, uncertainty becomes opportunity. And that’s the essence of trading earnings the right way.

Earnings Plays in Context

Earnings trades are exciting, short, data-driven, and often packed with opportunity, but they’re just one piece of a much larger framework. At The Option Premium, we never rely on a single edge or event. Instead, we build a layered approach that balances long-term consistency with short-term opportunity.

Earnings setups help us capture temporary volatility spikes. But outside those windows, our focus shifts to core income and growth strategies, from cash-secured puts and covered calls in The Income Foundation, to capital-efficient Poor Man’s Covered Calls in Wealth Without Shares, and probability-based credit spreads, condors, and volatility overlays in The Implied Perspective.

Each strategy plays a specific role:

• Income strategies create steady premium flow in a wide range of market environments.

• Growth strategies use long-dated options to capture compounding potential with defined risk.

• Volatility strategies hedge, diversify, and enhance returns when markets get noisy.

It’s this integration, not any single trade, that makes the difference. We’re not chasing excitement; we’re engineering repeatability. Every decision, from strike selection to position size, is grounded in probabilities, risk management, and portfolio balance.

Earnings trades simply highlight the process in real time: disciplined setups, statistical reasoning, and emotion-free execution. The same principles apply across every strategy we trade at The Option Premium, because real success doesn’t come from prediction. It comes from preparation, structure, and the willingness to let the math do its work.

Probabilities over predictions,

Andy Crowder

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