Earnings Season Double Calendar Spread Strategy

During the current earnings season, we have identified several compelling option trading opportunities.

To profit from price movements in either direction following earnings announcements, we are implementing double calendar option spreads on carefully selected stocks.

Stock Selection Criteria

The stock selection process is based on rigorous analytical criteria designed to identify optimal trading opportunities:

Volatility Analysis and Forecasting

We estimate the expected impact of upcoming earnings events on options' implied volatility; comparing the market's current expectations to historical realized moves. This analysis measures the average absolute percentage move that stocks have made historically versus the market's current estimate of expected movement around earnings events.

We analyze the 30-day implied volatility of each asset, which represents the market's forecast—based on current options prices—of expected volatility on an annualized basis over the next 30 calendar days.

Market Requirements

We focus exclusively on stocks that meet the following minimum standards:

• Stock price above $20

• Average daily options trading volume of at least 1,000 contracts

• Ask-Bid is not wide, with Market Width less than 2%

Expected Move Parameters

We target stocks where the post-earnings price movement is expected to fall within our optimal range:

• Minimum implied move: 3%

• Maximum implied move: 8%

Double Calendar Spread Structure

A double calendar spread consists of four legs designed to capitalize on volatility dynamics:

Short-Term Positions (Less than 7 days to expiration)

• Sell a call option (high implied volatility)

• Sell a put option (high implied volatility)

Long-Term Positions (Approximately 40+ days to expiration)

• Buy a call option (lower implied volatility)

• Buy a put option (lower implied volatility)

This structure allows us to benefit from the volatility crush that typically occurs after earnings announcements while maintaining exposure to potential larger moves through the longer-dated options.

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