Trading options through earnings is one of the biggest decisions you will make as an options trader. Many options investors attempt to guess how a company’s earnings release will play out so they can make big profits once the market reacts to the news.
I’ve done quite well trading options through earnings in the past but have also been wiped out on several occasions. Now, I’m extremely cautious about trading options through earnings because you can lose all of your gains within minutes if the trade goes against you.
Should You Hold Options Through Earnings or Sell Them Beforehand?
I no longer hold options through earnings because of the higher IV (implied volatility) and risk. It’s a much safer strategy to sell your options contracts on the same day before earnings are released during after hours to lock in your gains.
Usually, many options traders will start buying up options contracts as a gamble depending on which company is reporting earnings. Here’s an example of how I made a quick 40% return buying Tesla call options before the Q3 2022 earnings release.
I purchased a TSLA $250 10/21 call option for $1.03 the day before Telsa released earnings.
I sold my TSLA call option because I didn’t want to get greedy. Even though Tesla achieved record revenue and deliveries, TSLA shares sold off and trade lower the next day. If I held my call options contract through earnings then I would have lost all my money.
Any profit is a good thing in my opinion. You win the options trading game by taking small wins over time. Don’t shoot for the home run every time you swing. Slow and steady wins the race or else you run the risk of blowing up your options trading account.