Before you start making earnings trades it's important to understand the "why" behind what we do. In general, we make earnings trades to potentially profit from an IV crash that happens following the company's announcement.
Before a company announces earnings you will generally see the implied volatility of its options increase as the one-time binary event draws closer. After the event has occurred, there is less fear or unknown in the market and therefore implied volatility will drop quickly for the underlying options.
As traders we can tailor specific options strategies to profit from this one time event in any stock. In this video we’ll show you some examples to prove the IV crush theory.