One of the most overlooked opportunities for generating consistent trading income comes during earnings season. Right before a company reports, option premiums often surge to unusually high levels.
This creates a unique window where we can sell options far from the current price, giving us a very high probability of success.
The What: Selling Options Into Earnings
This powerful approach is called selling options into earnings. Here’s how it works:
- Selling a put = getting paid to wait. You collect a premium for agreeing to buy the stock at a lower price, but only if it actually falls that far.
- Volatility is your friend. Because option premiums spike before earnings, we can often sell strikes 10%, 20%, sometimes even 30% below the stock’s price.
- Built-in cushion. In some cases, the stock would need to drop by a third in just a few days for the trade to lose. That’s the edge this setup provides.
Why It Works
Volatility Inflation: Before earnings, traders bid up option prices due to uncertainty. Once the announcement passes, volatility collapses—leaving option sellers with the premium.
Time Decay Advantage: Earnings trades are short-term. Options lose value quickly as expiration nears, and that time decay works in our favor.
Probability Edge: By selling far out-of-the-money strikes, we tilt the odds heavily in our favor—even if the stock gaps after earnings.
Check out the Weekly Options Trader Letter, where we sell options and spreads for weekly income that expire in 10 days or less—timed with Master Trader technical turning points.
Let's review a few of these trades recommended last week on earnings to show you the simplicity of this strategy to generate weekly income using Master Trader Strategies (MTS).
Take DUOL, for example. Just before earnings, option premiums ballooned so much that we could sell puts nearly 30% below the current price.
Think about that — the stock could crash by almost a third in just a few days, and the trade could still be profitable. That’s the kind of edge this setup creates.
In DUOL, we sold the $230 puts, which were $113 lower than the stock price when we entered the trade. As long as DUOL closes above $230 at expiration in three days – that’s a whopping 32.9% lower – then the premium received is full profit!
One contract represents 100 shares of the underlying, so this trade made $220.00.
Or consider a neutral strategy below, like selling both calls and puts (an iron condor). If the stock opens relatively flat after earnings, both sides decay rapidly, and the seller profits from the inflated premiums.
In SNAP, we sold both a far out-of-the-money call spread and a put spread (called an Iron Condor), where we received a premium on both spreads. It’s a neutral strategy where we are hoping that the stock opens relatively flat. It did not here; instead, it had a very significant 20% gap against us!
Nevertheless, on a morning bounce, we were able to exit the trade profitably – despite this huge move against us! That’s the magic of selling options into earnings.
The Risks
Of course, not all trades work perfectly. A massive surprise move can breach even distant strikes. That’s why some traders prefer defined-risk spreads, which cap the potential loss while still capturing premium. The key is balancing high probability setups with sound risk management.
Key Takeaway
The lesson here isn’t about memorizing strikes or exact setups. It’s about understanding that:
- Earnings season creates temporary distortions in option pricing.
- Those distortions can be used to generate income with unusually high probabilities.
- The real edge comes from combining chart analysis with this volatility dynamic.
Read about the Weekly Options Trader letter, which sells options/spreads for weekly Income that expire in 10 days or less around Master Trader technical turning points, CLICK HERE.
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