Iron Condor Earnings Trade: Step-by-Step

Summary

An earnings iron condor sells premium on both sides of the stock, profiting when the post-earnings move stays within a defined range. It benefits directly from IV crush and wins roughly 65-75% of the time when strikes are set at the expected move. Here is exactly how to set one up.

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Step 1: Pick the Right Stock

Not every earnings event deserves an iron condor. The best candidates:

  • Large-cap stocks with liquid options (tight bid-ask spreads)
  • Stocks that consistently move less than expected after earnings
  • IV rank above 50 (current IV is elevated relative to the past year)

    • Good candidates: AAPL, MSFT, GOOGL, JPM, UNH, PG, V

    Poor candidates: TSLA, NFLX, SNAP, PLTR (too many surprises)

    Step 2: Calculate the Expected Move

    The expected move tells you how far the market thinks the stock will go. To calculate it:

    ATM straddle price ÷ stock price = expected move percentage

    If GOOGL is at $175 and the weekly ATM straddle costs $10, the expected move is ±$10, or ±5.7%.

    This gives you your target range: $165 to $185.

    Step 3: Set Your Short Strikes

    Place your short strikes at or slightly beyond the expected move:

  • Short call: At or just above the upper expected move ($185 or $186)
  • Short put: At or just below the lower expected move ($165 or $164)

    • Why beyond the expected move? Because the stock lands within the expected move roughly 70% of the time. Going slightly wider pushes your probability of profit to 75% or more.

    Step 4: Set Your Long Strikes (Wings)

    Buy protective options $5 beyond your short strikes:

  • Long call: $190 (protecting against upside above $185)
  • Long put: $160 (protecting against downside below $165)

    • Wing width determines your maximum risk. Wider wings = higher max risk but more credit received. For earnings trades, $5 wide spreads are standard.

    Step 5: Enter the Trade

    Timing: Enter the trade on the day of earnings, ideally 1-2 hours before the close. This is when IV peaks and you collect maximum premium.

    Order type: Limit order, starting at the mid-price. If not filled in 10 minutes, move your limit $0.05 toward the natural (less favorable) side.

    Example fill on GOOGL:

  • Sell $185 call / Buy $190 call: $1.20 credit
  • Sell $165 put / Buy $160 put: $1.40 credit
  • Total credit: $2.60
  • Max risk: $5.00 - $2.60 = $2.40

    • Step 6: Wait for Earnings

    There is nothing to do between entry and the announcement. Do not adjust, do not hedge. The trade is set.

    Step 7: Manage After Earnings

    Three scenarios:

    Scenario A: Stock stays in range ($165-$185)

    GOOGL opens at $172 the morning after earnings. Both spreads are OTM. IV has crushed. The iron condor is worth roughly $0.80.

    Action: Close the trade for $0.80 debit, locking in $1.80 profit ($2.60 credit - $0.80 debit). That is a 75% return on the $2.40 risk.

    Scenario B: Stock near a short strike ($164 or $186)

    GOOGL opens at $186.50, just above your short call strike. The call spread is ITM but the stock is only $1.50 past the strike.

    Action: Close the call spread immediately. It might be worth $2.50. Your put spread is nearly worthless ($0.10). Net loss: $2.50 + $0.10 - $2.60 = $0.00. Roughly breakeven.

    Scenario C: Stock gaps well past a strike ($160 or $192)

    GOOGL opens at $158 after a guidance cut. Your put spread is fully ITM, worth $5.00. Your call spread is worthless.

    Action: Close everything. Net loss: $5.00 - $2.60 = $2.40. This is your max loss. It hurts but it is defined.

    Tracking Performance

    Over a full year of earnings iron condors across 10-15 stocks per quarter, expect:

  • Win rate: 65-75%
  • Average win: $1.50-$2.00 per spread
  • Average loss: $2.00-$2.50 per spread
  • Net result: Positive if you maintain strict sizing and stock selection

    • OptionsPilot's backtester lets you simulate iron condor earnings trades across historical quarters, showing actual win rates and P&L for specific stocks.