Pre-Earnings Options Run-Up Strategy

Summary

The IV run-up before earnings is one of the most predictable patterns in options trading. IV starts rising 2-3 weeks before the announcement, accelerating in the final week. By buying options early and selling before earnings, you capture this expansion without facing IV crush.

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The Pattern

Every quarter, the same cycle repeats:

  • 3-4 weeks before earnings: IV at baseline. Options are priced normally.
  • 2-3 weeks before: IV starts creeping up as traders build positions.
  • 1 week before: IV accelerates sharply. Options gain 20-40% from IV expansion alone.
  • Day of earnings: IV peaks. Maximum premium in the options.
  • Day after: IV collapses 40-60%.

    • The run-up phase is the opportunity. You buy when IV is at baseline and sell when it peaks, capturing the expansion without exposure to the binary event.

    The Setup

    Step 1: Identify the target. Pick a stock reporting earnings in 2-3 weeks with liquid options and a history of significant IV expansion before earnings.

    Step 2: Buy an ATM or slightly OTM straddle or call. Use an expiration that includes the earnings date (the weekly or monthly that expires the Friday after earnings).

    Step 3: Set your exit. Plan to close the position 1-2 days before earnings, capturing the IV expansion.

    Example on NFLX:

    NFLX is at $670, reporting in 14 days.

  • Current IV30: 42%
  • Expected IV at earnings: 62% (based on historical pre-earnings IV)
  • Buy the $670 straddle for $28.00

    • 10 days later (2 days before earnings):

  • IV has risen from 42% to 60%
  • NFLX has drifted to $675 (small move)
  • Straddle is now worth $36.50

    • Sell for $36.50 — profit of $8.50 per share ($850 per contract), a 30% return.

    You never held through earnings. No IV crush. No binary risk. Pure IV expansion profit.

    Why This Works

    Market makers gradually reprice options as earnings approach because the uncertainty of the event gets closer. This repricing is mechanical — it happens regardless of the stock's direction. As long as the stock does not move significantly against your position, the IV expansion more than offsets theta decay.

    Best Stocks for the IV Run-Up

    Look for stocks with the largest spread between normal IV and pre-earnings IV:

    | Stock | Normal IV30 | Pre-Earnings IV | IV Expansion | NFLX35-40%58-65%+60-80% TSLA45-55%70-85%+45-55% META28-32%48-55%+65-75% AMZN25-30%42-50%+60-70% | SNAP | 55-65% | 90-110% | +60-70% |

    Stocks with higher IV expansion ratios offer better run-up trades.

    Risk Management

    Position sizing: Risk no more than 2-3% of your account. The straddle can lose value if the stock moves sharply against one side or if IV fails to expand on schedule.

    Stop loss: If the straddle loses 15-20% of its value despite being within the run-up window, something is wrong. Close the position.

    Theta drag: The straddle loses roughly 1-2% per day to theta. Over 14 days, that is 14-28% of the position. The IV expansion needs to exceed this theta drag to be profitable.

    Failed run-ups: Occasionally, IV does not expand as expected. This happens when the stock has already been volatile (IV is already elevated from news or macro events) or when the market is broadly calm. If IV is already in the 70th percentile of its annual range, there is less room for pre-earnings expansion.

    Advanced: Using Calendars for the Run-Up

    A cleaner way to capture the run-up is with a calendar spread. Buy a longer-dated option and sell the weekly that expires before earnings.

  • Buy the monthly call (expires 30+ days after earnings)
  • Sell the weekly call (expires before earnings)

    • As earnings week approaches, sell the next weekly (the earnings week expiration) at high IV against your long option. The IV differential widens in your favor.

    OptionsPilot tracks IV levels across multiple expirations, helping you identify when pre-earnings IV expansion is underway and gauge how much further it is likely to go.