Buying vs Selling Options Before Earnings - Long or Short Premium
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Compare buying and selling premium into an earnings report, and calculate how far the stock must move the next morning for each side to profit.
Buying options before earnings is a bet that the stock moves more than the implied move; selling options before earnings is a bet that it moves less. Both sides pay or collect the same inflated premium, and the IV crush after the report decides much of the result.
The Expected Move Before Earnings showed how to read the move priced in. This lesson follows the same XYZ straddle through the report from both sides: the buyer who pays $8.83 and the seller who collects it.
What are you betting on when you buy options before earnings?
You are betting on the size of the move, not just its direction. The premium you pay already includes the market's estimate of the move. To profit, the stock has to beat that estimate, and quickly, because the extra implied volatility disappears once the report is out.
A buyer's appeal is the defined risk. A long straddle can lose at most what it cost, and it gains without limit on a large enough move up. The OIC's long straddle guide describes it as a position that profits from a big move in either direction.
What are you betting on when you sell options before earnings?
You are betting the stock moves less than the market priced, and collecting the IV crush as the report passes. The seller's problem is the other tail. A report that gaps the stock far beyond the implied move can cost many times the premium collected.
For a short straddle at expiration:
- Maximum profit is the premium collected, if the stock finishes exactly at the strike.
- Maximum loss is unlimited on the upside, and on the downside it is the strike minus the premium, per share, if the stock falls to zero.
- Break-evens are the strike plus and minus the premium collected.
The OIC's short straddle guide is blunt about it: the worst case is the stock rising without limit, and the next worst is the stock falling to zero.
A short straddle or short strangle has undefined risk. The short call's loss is unlimited if the stock rises. On the way down the position can lose the strike x 100 minus the premium: the XYZ 100 straddle sold for $8.83 loses up to $9,117 if the stock went to zero. Most brokers require a high options approval level and margin to sell one, and the margin can rise sharply into a report. Never sell one in a size where an outsized gap would do serious damage to your account.
Short XYZ 100 straddle sold for $8.83, at expiration
Hover or tap the chart, or focus it and use the arrow keys, to read any price.
Open this trade in the free calculatorShow as table
What happens to a straddle the morning after earnings?
Here is the same straddle, priced the next morning with implied volatility back at a normal 30% and 6 days left.
Worked example
The XYZ 100 straddle the morning after the report
The day before the report, XYZ is at $100 and the 7-day 100 straddle costs $8.83 ($4.46 for the call plus $4.37 for the put), at 80% implied volatility. Figures are hypothetical Black-Scholes values with a 4.5% rate and no dividends, per contract, before fees and spreads.
The next morning implied volatility is 30% and 6 days are left. What the straddle is worth depends on where XYZ opens:
The buyer needed XYZ beyond about $91.12 or $108.72 the next morning just to break even, almost the full implied move, because the crush took nearly all the extra value at once. A $5 move, more than half of the implied move, still lost the buyer $339. Moves down give almost the same straddle values: $526 at $95 and $993 at $90.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
What the $883 straddle is worth the morning after
Long XYZ 100 straddle, per contract
Notice how lopsided the outcomes are. The seller's best case is +$883, the full premium, only if XYZ ends at exactly $100 at expiration. The seller's losses keep growing: at expiration, with XYZ at $124, the short straddle loses $1,517, and on a gap to $150 it would lose $4,117.
Why does selling premium into earnings win small and lose big?
Because of the payoff's shape. The seller's gain is capped at the premium, while the loss is not. On a report where the stock moves less than the straddle, the seller keeps part of the premium. On a report that gaps far beyond the implied move, the seller can give back several quarters' worth of gains at once.
How often each happens differs by stock and by period, and the implied move is not always too high. A 2025 Cboe review of the largest technology stocks' earnings options found that they generally priced moves slightly below those stocks' historical averages. Over many reports, the result depends on whether the implied move has been too high or too low for that stock, which is why the comparison with past moves matters. A long-run average that favors sellers is still no help if one gap is large enough to end the strategy.
How do traders choose a side?
- Have a view on the size of the move, not just the direction. If you expect a move larger than the straddle, buying fits. If you expect a smaller one, selling fits.
- Size for the tail. A buyer can lose the whole premium. A naked seller can lose far more; size so that a move of two or three times the implied move is survivable.
- Decide when you will exit. Many traders close earnings premium trades the morning after, once the crush has happened, rather than hold them to expiration.
- Consider defining the risk. The Earnings Iron Condor for sellers and Debit Spreads for Earnings for directional buyers keep most of the idea while capping the loss.
Check your understanding
You buy the XYZ 100 straddle for $8.83 before the report. The next morning XYZ is at $105 and implied volatility has fallen to 30%. Did you make money?
Show answer
No. The straddle is worth about $5.44, a loss of about $339 per straddle. The $5 move was less than the $8.83 the straddle priced in, and the crush removed most of the extra value.
What is the most a short straddle can lose?
Show answer
On the upside, there is no limit. On the downside, the strike minus the premium collected, per share, times 100. It is an undefined-risk position.
Why does a long straddle need almost the full implied move the morning after just to break even?
Show answer
Because the crush removes nearly all of the extra extrinsic value at once. What is left is mostly intrinsic value, so the stock must move about as far as the premium paid.
Key takeaways
- Buying before earnings bets the move beats the implied move; selling bets it falls short.
- The morning after, the IV crush leaves a long straddle needing nearly the full implied move to break even.
- A short straddle's maximum profit is the premium collected; its upside loss is unlimited.
- A seller's gain is capped at the premium while a gap can cost many times that, so size for the tail and know your exit.
Common questions
Is it better to buy or sell options before earnings?
Neither is better on its own. Buying wins when the stock moves more than the implied move; selling wins when it moves less. Sellers benefit from the IV crush, but carry a much larger risk when the move is big.
Should you hold options through earnings?
Only if you have a view on the size of the move compared with the implied move, and can accept the loss if you are wrong. A long option held through the report usually loses most of its extra time value overnight, even if the stock moves your way.
Why do options lose value after earnings?
Implied volatility usually falls once the report is out, because the uncertainty it was pricing has passed. That IV crush removes extrinsic value from every option on the stock, with the at-the-money options losing the most.
Is selling a straddle before earnings risky?
Yes. A short straddle has unlimited risk if the stock rises and very large risk if it falls. Earnings gaps can be several times the implied move, and the stock can open beyond any stop you had in mind.