the best options strategy for earnings

Expected Move Butterflies for Earnings

By:Dr. Jim Schultz

A low risk, high return earnings strategy

  • Regardless of what anyone tells you, no one knows how a stock will react to its earnings report.
  • Given the unpredictability of an earnings call, it’s never a bad idea to shrink your position size even further and focus on reducing risk.
  • Expected move butterflies give you a low risk/high return option for taking a directional shot for an earnings call.

Earnings are always totally random. You don’t know what the company will report, and you have no clue how the market will respond to whatever the company does report. Regardless of the prognostication coming from your favorite prognosticator, the directional move post earnings is always a crapshoot. Just the same, earnings announcements offer premium sellers plenty of opportunities because of the potential for an explosive move and inflated implied volatility.

So it may be time for a strategy called the “expected move butterfly.”

Expected move butterflies

Given the unpredictability surrounding the stock market reaction to an earnings report, keeping an eye on the risk of these events is a prudent move, and an expected move butterfly gives you a low-risk way to take a directional shot. The most you can lose on a standard expected move butterfly with symmetric wings is the debit you pay. So it’s easy to shrink your size on order entry and significantly reduce your risk.

Yes, no one knows how a stock will react to an earnings call, nor how far it might run in one direction or the other. But the probabilities of the marketplace still produce an expected move heading into the number. By anchoring the sweet spot of your expected move butterfly (the short strikes) right on the edge of the expected move to the side of the market you think the stock might move, you’re able to harness the power of statistics as you build this earnings strategy.

The BEST earnings strategy?

And the best part? Not only are expected move butterflies low-risk strategies, but they’re also high-potential-return strategies, too. So if you totally miss the mark, and the stock immediately runs the other way and never looks back, not much is lost. You forfeit the debit paid and move on to the next trade. But if you nail the directional move, without missing the mark too badly on its magnitude, you could be looking at a really nice payday.

Jim Schultz, a quantitative expert and finance Ph.D., has been trading the markets for nearly two decades. He hosts From Theory to Practice, Monday-Friday on tastylive, where he explains theoretical trading concepts and provides a practical application of those concepts to a trading portfolio. @jschultzf3

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.