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Market Measures

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Earnings vs Short Premium

Market Measures

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How do the metrics of earnings trades and short premium trades differ?

  • Short premium trades
    • SPY, 45 DTE, 2005-2018
    • 16 delta strangles
    • Managed at 21 DTE
  • Earnings trades
    • AAPL, AMZN, GS, IBM, GOOGL, 5 DTE, 2010- 2018
    • 16 delta strangles
    • Managed day after earnings
  • Recorded average P/L and average standard deviation (risk) of P/L of both strategies

We find that earnings trades have much larger variance in P/L and lower P/L on average than short premium trades. The reason we trade earrings, however, is due to their engagement value. Earnings trades have many more periods with high IV than normal short premium trades.

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