Earnings Straddles Are Having Their Moment

This earnings season has been unusually favorable for straddle buyers.

Over the past four weeks, options straddles on U.S. companies reporting earnings have generated an average return of approximately 45%. That compares with an average return of roughly negative 2% across the last twelve quarters.

That is a meaningful shift. So what changed?

As Matt Amberson noted in comments to Reuters:

Straddles benefit when actual stock moves exceed what options markets priced in ahead of earnings. In recent years, implied earnings moves often overstated realized volatility. Traders paid up for event risk, and the moves frequently fell short.

This quarter has looked different. Actual earnings moves have been consistently larger than the implied move embedded in the pre-earnings straddle. That gap between implied and realized volatility is what has driven the strong returns.

Several factors appear to be contributing:

• Greater dispersion in company performance

• Increased sensitivity to forward guidance

• Macro uncertainty translating into sharper single-name reactions

In short, earnings are moving stocks in a way that resembles earlier high-uncertainty environments.

ORATS tracks earnings straddle performance by comparing the implied earnings move, derived from the at-the-money straddle minus residual time value, against the actual absolute stock move following the announcement. This methodology isolates the earnings event itself from broader term structure effects.

Earnings season starts approximately two weeks after quarter-end, beginning in mid-January, April, July, or October, and runs for six weeks. ORATS reports the number of firms yet to announce during each period, tracks implied earnings percentage moves estimated from options straddles, and compares them against the trailing 12-quarter average of actual absolute earnings moves.

A straddle is considered a “winner” when the actual stock move exceeds the implied move priced into the options, meaning the position would have been profitable at expiration.

For firms announcing over the past four weeks, filtered for stock prices above $10, daily option volume exceeding 300 contracts, and meeting additional liquidity thresholds, the win rate for straddle buyers has meaningfully exceeded the 12-quarter historical average.

The ratio of implied earnings moves to the trailing 12-quarter average of actual moves provides a gauge of market expectations. When this ratio runs high, options are pricing in elevated risk relative to history. When it runs low, options may be underpricing the event.

This season, even with implied moves reflecting heightened uncertainty, realized moves have outpaced them. That combination has rewarded straddle buyers in a way that has not been common in recent quarters.

Historically, actual earnings moves tend to increase as the season progresses. Early reporters, often larger and more predictable companies, tend to produce smaller surprises. Later in the cycle, smaller and mid-cap names with less analyst coverage can generate outsized moves. This quarter has followed that pattern, but with amplified magnitude across multiple weeks.

Earnings seasons rotate between regimes.

There are periods when implied volatility consistently overprices earnings risk, and straddle sellers collect premium. There are periods, like the current one, when realized dispersion surprises to the upside and straddle buyers profit.

For traders and funds that systematically evaluate event risk, the key question is whether implied pricing is aligned with historical earnings behavior and current macro conditions. This quarter, that alignment has clearly shifted.

ORATS publishes weekly earnings season summaries tracking the number of firms yet to report, implied versus actual moves, and straddle win rates. Monitoring these metrics helps identify when earnings volatility regimes begin to change.

The recent data is a reminder that earnings volatility can reprice quickly, and when it does, the performance profile of common event strategies can change just as fast.