Long Straddle Before Earnings

Let’s talk about the earnings trade most people think they’re doing and why they get burned, then we will discuss the one that actually stacks the odds: the long straddle before earnings

Quick understanding of a long straddle = buy 1 ATM call + buy 1 ATM put, same strike, same expiry.

You’re paying a debit to own movement and, crucially for this setup, rising implied volatility (IV).

How to Earn Long Straddle Before Earnings

Markets hate uncertainty. Right before results, uncertainty, IV rises, and option premiums expand.

After results, uncertainty vanishes, IV crush, premiums deflate, often violently. So our edge is not “guessing” the earnings outcome; it’s renting IV on the way up and getting out before it implodes.

If you’ve ever bought a straddle right before earnings, saw the stock gap the next morning, but still lost money, this means that you’ve been hit by IV crush.

For example, if implied volatility (IV) dropped from 32 to 23 overnight after results, it wipes off your option value, even if the stock moved in your favor.

It is not a trick; it’s just how options lose value once the uncertainty of earnings is gone.

Timing of Long Straddle Before Earning

Here’s the simple, tested rule an experienced trader follow:

• Enter the long straddle 4–5 trading days before the result date.
• Sell before the earnings announcement. If the company reports after Thursday’s market close, sell by Thursday’s close. If it reports during market hours, sell a day earlier to avoid sudden drops

Traders usually start preparing 5–10 days in advance and take action 4–5 days before the event.”

Finding the Right Stocks for Long Straddle Before Earnings

The major part lies in investing the time to find the right stocks to deploy this strategy.

This starts a few days before and gives results by followingthe right practices as mentioned below:

1) Plan ahead

• Pull up an earnings calendar for the next 2–3 weeks so you don’t panic.
• Be ready about 10 days before the busy season.
• Big Indian companies often report around the 2nd week of Jan/Apr/Jul/Oct—use that to plan.

2) Check how IV behaves before earnings

• Look at the past few quarters and see how implied volatility (IV) moved 3–5 days before results.
• You want stocks where IV usually rises consistently. Skip the ones with random IV patterns.

3) Watch IV Percentile (IVP)

• If IVP is too high, there’s little room to profit.
• Ideal IVP: 70–85. Skip names that are already stretched.

4) What to buy

• Buy an ATM call + ATM put (a straddle) at the same strike and expiry.
• Near-term expiry is fine—just enough days to avoid heavy time decay while IV rises.

5) Examples of why this works

• HCL Tech: IV rose from ~30 → 32–33 before results, even when the price stayed flat.
• Axis Bank: Holding through results can cause IV to collapse 20%+, so exit before the announcement.
• Wipro: Past IV rises worked when IV wasn’t already high.

6) Quick entry checklist

• Calendar: Lock in the result date.
• History: Check if IV usually rises 3–5 days before.
• IVP: Sweet spot 70–85.
• Liquidity: Tight spreads, good open interest.
• Price action: Neutral is fine; extra confirmations are a bonus.
• Risk: Max loss = debit paid, plus session cap.

7) Managing the trade

• Hold for 4–5 days while IV builds.
• If IV stalls or drops, exit early.
• Exit before results:
  • After market close → sell same day before bell.
  • During market hours → sell the day before.

8) Risk management

• Max loss = debit paid.
• Daily cap: e.g., ₹5–6k per trade, or adjust to your account.
• Skip high IVP stocks.

9) Backtesting

• Check several years of past results: date, IV changes, IVP, price movement.
• Look for repeatable IV rises, e.g., “5 of 8 past quarters showed 15–25% IV lift.”
• Keep a journal: entries, exits, IV snapshots, and notes.

10) Sample trade workflow

1. Two weeks before the season, mark likely names.
2. Five days before results, check IVP (70–85) and prior IV patterns.
3. Buy 1× ATM call + 1× ATM put.
4. Monitor IV, not price.
5. Exit before the announcement.
6. Repeat only for the best setups; don’t force more than 10–15 trades per season.

11) Common mistakes

• Buying straddles the day before results: Chasing theta and risking IV crush.
• Trading high IVP stocks: Skip overstretched names.
• Treating this as a directional trade: Focus on Vega (IV), not price.

Bottom line
Pre-earnings long straddles let you profit from rising IV, not predicting results. Follow the calendar, check IV/IVP, backtest, and stick to rules. The strategy is about harvesting IV safely, not chasing EPS surprises.

Want to understand this in more detail and get hands-on guidance? Join our options trading mentorship program and learn how to execute these trades step by step with expert support.