Options traders who purchased straddles on U.S. companies ahead of quarterly reports have seen unusually strong results this earnings season, according to data from options analytics provider ORATS.
The strategy - buying a call and a put option with the same strike and expiration date - is designed to profit from outsized stock moves after earnings without requiring a directional bet on the share price. ORATS reported that, for companies reporting results over the last four weeks, straddles earned an average return of 45%.
That performance stands in stark contrast to the strategy's recent history: ORATS measured an average return of 2% for comparable straddle trades across the previous 12 quarters.
"It has been a really good season for straddle owners," ORATS founder Matt Amberson said. He added that earnings announcements are again drawing significant attention as investors seek clarity on company performance in the current economic environment and on forward guidance. "If the news is good, we see large up moves. If news is bad, stock prices are getting punished," Amberson said.
Large-cap technology names provided prominent examples of the kind of post-earnings volatility that benefited straddle holders. Microsoft shares fell about 10% after its report, while Meta shares surged by a comparable magnitude following its earnings release. Those moves illustrate how a single earnings announcement can create an outsized payoff for a trader who has bought both calls and puts.
Market conditions heading into the earnings period likely helped the strategy's economics. Expectations for near-term stock volatility were generally muted at the start of the reporting season - the Cboe Volatility Index was near multi-month lows early in the year - which can make options less expensive and thus increase potential returns if realized volatility rises around earnings.
Among the S&P 500 companies that had reported results as of February 12, 353 in total, 75.4% beat analysts' expectations, based on an I/B/E/S analysis conducted by Tajinder Dhillon, head of earnings and equity research at LSEG Data & Analytics. That high rate of beats reflects the specific mix of company results through the date noted and is part of the context in which straddle returns were realized.
Traders using straddles do not need to predict direction, only the magnitude of a post-earnings move. The recent combination of sharply moving individual stocks around earnings and relatively low pre-season volatility contributed to unusually favorable outcomes for buyers of this options strategy over the last four weeks.