InsightsEvent volatilitySeptember 2026 · 6 min read

Reading the implied move before earnings

Options tell you how big a move the market expects. Compare that with how the stock has actually moved, and the trade often chooses itself.

By Shrey Desai

Every quarter, options on a stock reporting earnings get more expensive in the days before the announcement. That extra price is not a mystery. It is the market's estimate of how far the stock will move when the numbers come out, and you can read it directly.

The straddle is the market's forecast

Take the at-the-money straddle for the first expiry after the announcement: one call and one put at the strike nearest the current price. Its combined price is a good rule-of-thumb estimate of the expected move, in either direction.

Worked example

The stock trades at $200. The call and put at the $200 strike cost $6.20 and $5.80.

Straddle = $12.00 → implied move ≈ 12 ÷ 200 = ±6.0%

The reason this works: for an at-the-money option, the straddle's price is close to the expected absolute size of the move under the pricing model. So the market is saying the stock will move about 6% in some direction.

Now check the history

Look up the stock's actual move on the day after each of its last eight earnings reports, and average the absolute values. That gives you realised behaviour to set against the implied estimate.

  • History averages 4%, implied 6%. Options look expensive. Buying the straddle means paying for a move the stock rarely delivers.
  • History averages 9%, implied 6%. Options look cheap. The market may be underpricing the event.
  • History and implied roughly agree. There's no obvious edge in volatility. Any trade is a directional view, so treat it as one.

Volatility crush

Once the announcement is out, the uncertainty it carried disappears, and implied volatility usually collapses overnight. This is why buyers of earnings straddles are often surprised: the stock moves, just not by more than was priced in, and the position still loses money. A long straddle needs the move to beat the implied move, not just to happen.

Three ways to act

  1. Own the event. Buy a straddle or a cheaper strangle when history suggests the implied move is too small. The most you can lose is the premium.
  2. Sell into the run-up. Implied volatility often climbs in the days before earnings. Options bought earlier can be sold before the announcement, capturing the rise without taking the gap risk.
  3. Stay out. When implied and realised moves agree, often the best trade is none.

You can see how a long strangle's value changes with volatility and time in the Strategy Lab. Choose Long strangle, then move the implied volatility and days-elapsed sliders.

Educational content only, not investment advice. Figures are hypothetical. See our disclosures.