One of the most reliable post-earnings setups
This is one of the most reliable post-earnings setups in the market.
However, it's really invisible to anyone not watching the skew.
Setup below:
A stock is rallying into earnings. Skew shifts hard toward calls. Implied vol on upside strikes is bid. Retail and momentum funds are piling into upside calls.
What's happening underneath: dealers are short those calls. To hedge, they buy stock. Lots of it. The stock keeps grinding higher, partly because of the dealer demand.
Earnings prints. Even if the number is decent, vol gets smashed. That's mechanical. Earnings vol always resets.
The calls that the dealers are short have just lost their Greeks. The delta on those calls is collapsing. What was a 30-delta call yesterday is a 10-delta call this morning.
The stock they bought to hedge those calls? They no longer need it.
So they sell.
If the print wasn't strong enough to push the stock through those call strikes and keep the deltas alive, the unwind cascades. Vol crushed. Delta crushed. Dealer hedges dumped into the tape. The stock rolls over even though the report wasn't bad.
This is why "good earnings" stocks sometimes drop 8% the next day. The dealers are unwinding their hedges, and the tape eats it.
If you see skew piling into upside before a print, you know the setup is loaded. Whether to fade it is a separate question. But the mechanics are real, and they show up over and over.
We saw it with TSLA. We're seeing it with MSFT this week as well.
Reading skew before a print is one of the highest-leverage skills in options trading. It tells you what dealers are positioned for, which guides you to what can happen after the print clears.
That's exactly what we work through inside the Ultimate Options Course. You learn to read positioning the way professional vol traders do, then watch me apply it live every day in the Alpha Pod.
Imran
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