Earnings straddle

Checked October 2026

A long straddle buys a call and a put at the same strike, so a large move either way can pay for both and a quiet expiry loses the premium. Gao, Xing and Zhang bought that position in the days before an earnings announcement, in the Journal of Financial and Quantitative Analysis in 2018. Backtoast could not run it, because the option quotes on hand are for funds and indexes, not for single stocks around their own earnings.

Backtoast

You pay $99 for two full tests of your own strategy, and a pass is an offer of 30% of the profit Backtoast makes trading it with its own money.

Earnings straddle

The paper buys the straddle at the close three trading days before the announcement and sells it at the close on the announcement day, so it never holds to expiry. The options are near the money with 10 to 60 days left, and the call and put are weighted so the position starts with no lean up or down.

The short strangle is the opposite bet, selling a put and a call and keeping the premium when the move is small, and the stock trade on the same reports is post earnings announcement drift.

When it works

An earnings straddle is long premium, so it pays when the stock moves more on the report than its options priced in, and the paper found investors tend to underprice that move. The gain was larger in smaller and more volatile stocks, in stocks with more volatile past earnings surprises, and in stocks that cost more to trade. Traders use it because the report is a known date for a big move, and the most it can lose is the premium paid.

Origins

Gao, Xing and Zhang tested US stock options from 1996 to 2013. Their straddle made 2.60% a trade on average at mid prices, while an ordinary one-month straddle lost 17.09% on average.

Backtoast did not run this one.