This earnings season was different
Calendars into earnings work beautifully in a normal world.
You sell the pumped front expiry. You own the cheaper back expiry. When the stock lands somewhere near the implied move that was priced, the structure pays you. It's been a reliable trade for years.
This earnings season it hasn't worked.
The implied moves haven't been close on the big names. Stocks are doubling them. Blowing clean through the wings and out the other side.
When the move overshoots like that, a calendar is the wrong shape entirely. You end up short the move you needed to be long. The structure that was supposed to collect premium quietly turns into dead money.
Here's the part that stings.
The trade that's normally the stupid one, just buying the expensive outright option into the print, has been the one killing it this season.
Everyone knows you overpay for earnings vol. That's the received wisdom. This season the received wisdom has been wrong, because the "overpayment" has been repeatedly justified by the actual moves.
For me, that's a regime lesson rather than a structure lesson.
The calendar stopped working because the thing it quietly assumes stopped being true. The maths of the calendar hasn't changed. The assumption underneath the maths has.
The assumption was that the market roughly knows the size of the move. When that assumption holds, calendars are printing. When it breaks, calendars break with it.
That's what regime change looks like. The setup that worked for years stops working, and the thing that made you stupid for years suddenly makes you money.
Reading a regime shift, and knowing when the assumption underneath your favourite structure has stopped being true, is the difference between adapting and getting run over.
Want to know more about how to trade earnings? The framework I built across 20 years on bank options desks is below.
Lots more earnings coming this week. Will you be buying the implied moves?
The right answer is that it depends on whether you think the regime is still in play. If stocks keep doubling their implied moves, the outright long-vol trade keeps working, and the calendar keeps failing. If the moves start landing near what was priced, calendars come back into their own.
Reading which regime you're in matters more than the specific structure you like to trade.
Every trade you know has an assumption underneath it. When the assumption holds, the trade is a winner. When the assumption breaks, so does the trade.
If you want to skip the masterclass and jump straight into our course, the Options Insight Advantage, this is the link.
Imran
Disclaimer (Your Gains & Losses, Your Responsibility): This content from Options Insight LLC (“Options Insight”) is for educational purposes only and does not provide individual investment advice or recommendations, nor should it be considered an offer to buy or sell any security. All information is general and not tailored to your specific objectives, financial situation, or risk tolerance. Employees of Options Insight may hold positions in the assets discussed. While we use sources believed to be reliable, we are not responsible for errors, omissions, or losses resulting from reliance on this content. Always consult a licensed investment professional.
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