Shubham Agarwal explains where traders go wrong during earnings season
After results, traders can look at IV crush strategies like Iron Fly or Iron Condor to take advantage of falling premiums.
A company reports record profits. Management gives positive guidance. Everything looks perfect. You buy the stock, expecting it to rally. Instead, it falls 6%.
How is that possible?
The answer is simple. By the time the results are announced, the market has often already priced them in. During earnings season, what matters isn’t just the numbers. It is whether those numbers are better or worse than what traders were already expecting.
The Build-Up Before Results
Results don’t arrive as a surprise. Institutional investors spend weeks analysing companies. Analysts publish estimates. Fund managers build positions. Options traders adjust their trades. As expectations build, the stock often starts moving even before the announcement.
In the derivatives market, one more thing happens. Implied Volatility (IV) rises because traders expect a large move after the results. Higher uncertainty means higher option premiums. Think of IV as the market’s nervousness before a big event. The more uncertain the outcome, the more expensive options become.
By the time the company announces its results, much of the optimism or pessimism is already reflected in the stock price.
The Biggest Mistake
Most retail traders wait for the results. They see positive headlines and rush to buy. Unfortunately, they are often buying after the move has already happened.
Sometimes the company reports excellent numbers, but the stock still falls. Why? Because the market was expecting even better results. This is what traders mean when they say something is “priced in.”
The market doesn’t compare today’s results with last quarter. It compares today’s results with expectations. If expectations were extremely high, even good results can disappoint.
What Smart Traders Do
Instead of reacting to headlines, experienced traders watch how the market is positioned before the event. They ask a few key questions. Has the stock already rallied sharply before results? Is Implied Volatility unusually high? Are futures showing long build-up or short build-up? Has the option chain become expensive?
Rather than chasing the first move after results, they wait for the market to digest the announcement. Once volatility settles and fresh trends emerge, they look for better risk-reward opportunities. Sometimes, the best trade is not before or immediately after the result, but a day or two later.
What to Trade
When IV is very high just before results, option premiums are expensive. Buying options at that point means you are paying up for expected volatility. Once results are out, IV often drops sharply. This is called IV crush.
After results, traders can look at IV crush strategies like Iron Fly or Iron Condor to take advantage of falling premiums.
Conclusion
Earnings season is not about predicting whether a company will report good or bad numbers. It is about understanding what the market has already priced in. The biggest mistake traders make is reacting to the news after everyone else has already acted.
Markets move on expectations first and results second. If you learn to read expectations instead of headlines, you will avoid one of the most common traps of earnings season.
First published on 18 Jul 2026: prices, lot sizes and expiries are those of that time. They are illustrations for education only, not investment advice. Derivatives trading carries risk; read all scheme and risk documents before trading.
