Earnings Volatility Crush (Flies & Calendars)

The Rationale (The "Why")

Before a company announces earnings, uncertainty is at its peak. This causes the price of its options—especially those expiring right after the announcement—to become very expensive. Think of it as the market selling high-priced "volatility insurance." Immediately after the announcement, all that uncertainty vanishes, and the price of those options collapses. This is known as "volatility crush."

This scanner identifies three distinct, defined-risk strategies designed to profit from this predictable collapse.

How to Trade It (The "What")

All three trades are entered for a debit and aim to capture the rapid decay of the expensive, front-month options after earnings are released.

Fight for Your Entry Price. This is a low-cost trade with a potentially massive reward-to-risk ratio. Every single penny you pay to enter dramatically changes this profile. A $0.05 entry on a $1-wide fly is a 19:1 reward:risk trade, while just $0.05 higher ($0.10) cuts that in half to 9:1. Work your limit orders aggressively to get the best possible fill.

The Butterfly Spread ("Fly")

Your Maximum Loss is limited to the small debit you paid (e.g., a 0.10db trade means your max risk is $10 per contract).

Your Maximum Profit occurs if the stock price finishes exactly at the middle strike of your fly at expiration.

Trade Management: The goal is to capture the vol crush, not hold to expiration. Plan to close the position the day after the earnings announcement. A realistic target is to capture 25-50% of the maximum potential profit.

The Calendar/Double Calendar Spread

This trade involves selling an expensive option in the near-term expiration (the one right after earnings) and buying a cheaper option with the same strike in a later expiration.
Your Maximum Loss is limited to the net debit you pay to enter the trade.
The profit engine is the rate of decay. After earnings, the front-month option you sold will collapse in value much faster than the back-month option you bought. You profit from this widening difference in price.
Your Maximum Profit is achieved if the stock price is at or near the strike of your spread at the front-month expiration. Note that it cannot be calculated directly since it's a product of terminal volatility, but typical calendars return ~66-100% on total risk. Double cals return somewhat less - 50-75% - but over a wider price range.
Trade Management: Like the butterfly, this trade is designed to be closed the day after earnings to capture the most aggressive part of the vol crush.

Disclaimer: The information provided on this page is for educational and informational purposes only. It is not intended as and should not be construed as financial advice, a recommendation, or a solicitation to buy or sell any security. Trading options involves substantial risk and is not suitable for all investors. Past performance is not indicative of future results. You should consult with a qualified financial professional before making any investment decisions.