Continuing my experiments with trading earnings reports, I have developed a specific position structure that I now primarily trade.
The overall idea is as follows: the trade involves a large-cap stock (market cap over $200-300 billion) with a generally positive sentiment — a stock I would comfortably hold as a core position for around a year.
From there, I construct a double put/call calendar with positive delta:
- short legs in the nearest expiration with maximal implied volatility,
- a long put with an expiration one to two months out,
- and a long call with a 9-12 month expiration.
The positioning and timing of the legs are determined based on backtesting approximately the last 10 earnings reports.
Given the implied volatility crash post-earnings, this structure profits if, after the report:
- the stock remains largely flat,
- there is a modest price move (up or down),
- or a strong positive move, but not an extreme one (not exceeding 2-3 times the maximum move seen in recent history).
- Even a significant negative move is not too detrimental — in that case, profits are taken from the put spread, and the wiped-out short call is repurchased. The long call remains, which, given its long-term expiration, can either appreciate on its own or be managed actively: minimizing losses, breakeven, or profiting, by managing the position with monthly sold calls.
The only scenario where the position is likely to incur a guaranteed, albeit limited, loss is an extreme upside move — the kind expected at the open with ORCL currently up about 30% in aftermarket trading. If we open at that level, we would take profit on the short put leg and possibly a small profit on the call spread, but with the long put (especially given the time frame), there is little to be done. It will be interesting to observe how the volatility of the long call changes.
Wishing you profitable trades and good luck.
Double calendar spread on ORCL earnings
byu/BlackDriller23 inoptions
Posted by BlackDriller23