Earnings Straddle Expected Move: Quote Proxy, Variance, and Execution

For educational purposes only; not investment advice. Investing may result in loss.

Direct answer

An earnings straddle expected move is a quote-dependent reference built from a call and put at the same strike and expiration around a scheduled earnings release. It summarizes how much option premium is displayed for magnitude exposure; it does not predict direction or establish a probability, confidence interval, or guaranteed price range.

The reference is useful only when the event clock, at-the-money convention, quote side, size, timestamp, and maturity are explicit. It includes all remaining time to expiration, skew, rates, dividends, carry, supply and demand, and the bid-ask spread. An isolated event-variance estimate requires an additional model and non-event baseline.

Define the reference before interpreting it

For synchronized call and put quotes at the same K and T, define:

C_mid = (C_bid + C_ask) / 2

P_mid = (P_bid + P_ask) / 2

m_mid = C_mid + P_mid

m_buy = C_ask + P_ask

m_sell = C_bid + P_bid

The percentage references are 100 x m / S_0, using a synchronized spot S_0. The leg-summed m_buy and m_sell are conservative quote references, not guarantees that both legs and the displayed sizes can trade together; an actual complex-order net market can differ. When spot lies between strikes, state whether at the money is selected by spot, forward, Delta, or interpolation. Do not silently select the strike that gives the preferred result.

The expiration must contain the release after considering its actual timestamp, time zone, before-open or after-close session, last trade, and official settlement. Raw premiums or raw implied volatilities across maturities cannot be subtracted to isolate earnings because time, forward level, moneyness, and the volatility surface differ.

With annualized implied volatility sigma, year fraction T, and total variance w = sigma^2 x T, a teaching diagnostic is:

v_event = w_event_term - v_base x T_event_term

event sigma = sqrt(max(v_event, 0))

This requires a disclosed non-event variance rate v_base, consistent forward and moneyness coordinates, day count, and a surface convention. The result is a model-implied event log-return standard deviation under those conventions, not an arithmetic expected move, directly traded payoff, or forecast guarantee.

Four worked examples

• Three quote references. With S_0 = $100, a call quoted at $3.80 / $4.20 and put quoted at $3.60 / $4.00 have C_mid = $4.00 and P_mid = $3.80. Therefore m_mid = $7.80 = 7.80%, m_buy = $8.20 = 8.20%, and m_sell = $7.40 = 7.40%. The $0.80 buy-versus-sell quote width is potential execution friction, not realized cost or probability mass.
• Move size does not equal long-straddle profit. Buying the K = $100 straddle at $8.20 with M = 100 and total fees F = $2.60 creates a fee-adjusted distance of $8.226 and expiration breakevens of $91.774 and $108.226. At S_T = $108, expiration P/L is ($8.00 - $8.20) x 100 - $2.60 = -$22.60. A pre-expiration package exit bid of $7.50 produces ($7.50 - $8.20) x 100 - $2.60 = -$72.60, while S_T = $112 produces +$377.40 at expiration.
• Historical gaps are descriptive. For an as-known fixed-window sample of absolute gaps [2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 15, 20]%, the mean is 8.4167%, the median is 7.5000%, 5 / 12 = 41.6667% exceed the current 8.20% buy reference, and the maximum is 20%. Those statistics describe this small sample; they are not a calibrated probability forecast.
• Variance is not percentage-point subtraction. Suppose a matched 7 / 365 event term has annualized IV of 60% and the assumed non-event baseline is 25%. Total variance is 0.60^2 x 7 / 365 = 0.00690411, baseline variance is 0.25^2 x 7 / 365 = 0.00119863, and residual event variance is 0.00570548. Its square root is a model-implied event log-return standard deviation of 7.5535%; subtracting 60% - 25% = 35 percentage points is not an event-variance calculation.

Seven-step workflow and controls

1. Freeze the mandate, account, release date, actual publication time, time zone, before-open or after-close session, conference call, ex-dividend date, and overlapping catalysts.
2. Lock the exact root, option type, strike, expiration, quantity, multiplier, live deliverable, exercise style, physical or cash settlement, last trade, official settlement, and at-the-money convention.
3. Capture synchronized spot or forward, bid, ask, size, and timestamps; compute m_mid, m_buy, and m_sell; and label the quote side used in every comparison.
4. Convert the proxy to percent without probability language, and compare it with a fixed point-in-time historical return window that preserves release session, tails, corporate actions, delistings, and missing observations.
5. If isolating event variance, use consistent total variance, forward, moneyness, day count, surface, and baseline assumptions; record any negative or unstable residual instead of forcing a positive result.
6. Build executable entry, adverse-exit, and expiration ledgers with fees; fully reprice spot, skew, term structure, time, rates, dividends, and borrow; and compare stress loss with the written budget.
7. Prewrite no-fill, partial-fill, halt, exit, holder exercise, writer assignment, physical delivery, cash settlement, funding, tax, and residual-inventory branches; recompute when quotes or the schedule change.

• The release date, actual publication time, time zone, or before-open/after-close designation can be wrong or revised.
• The labeled expiration may not contain the event after last-trade, AM/PM, and official-settlement clocks are applied.
• The root, strike, expiration, quantity, multiplier, deliverable, style, or settlement method can be mapped incorrectly.
• A spot-based, forward-based, Delta-based, or interpolated at-the-money convention can select different strikes.
• Spot and option quotes can be stale, asynchronous, crossed, locked, or too small for the intended order.
• A midpoint is not an executable fill, and the buy and sell references can differ materially.
• The straddle reference can be mislabeled as direction, probability, confidence, or a guaranteed range.
• Residual non-event time can be a large part of the selected expiration’s premium.
• Skew, rates, dividends, borrow, carry, and supply-demand effects can contaminate a one-number proxy.
• Historical close-to-open, close-to-close, or intraday windows can be mixed inconsistently.
• Small samples, tails, regime shifts, corporate actions, delistings, missing data, survivorship, and look-ahead can distort history.
• Raw premium or raw-IV subtraction across maturities can confuse price, variance, time, moneyness, and surface effects.
• The total-variance fit, baseline variance, interpolation, extrapolation, or day-count assumption can be wrong.
• A negative or near-zero residual can signal inconsistent inputs rather than a literal negative event variance.
• Volatility crush, skew change, and higher-order effects can invalidate local Greek approximations.
• Fees, slippage, market impact, adverse selection, a missing bid, or a wide reopening can dominate the expected edge.
• Complex orders can partially fill, reject, leg, or execute at a different net price or ratio.
• A halt, overnight gap, or stop trigger does not guarantee an executable exit near the planned price.
• Early or partial assignment, holder exercise, adjusted deliverables, and physical versus cash settlement can change inventory.
• Buying power, margin, strike funding, borrow, tax, residual positions, and broker records can fail final reconciliation.

Common misconceptions

• “Spot plus or minus the straddle is guaranteed.” Actual moves can be much smaller or larger.
• “The raw premium is a 68% probability range.” That claim requires a stated distribution and conversion model.
• “An 8.20% stock move guarantees profit on an 8.20% long straddle.” Entry asks, fees, strike location, timing, IV, and exit bids matter.
• “The headline proxy predicts direction.” It is primarily a magnitude-price reference; skew needs separate analysis.
• “Subtracting maturity premiums or IVs isolates earnings.” Event extraction requires consistent total variance and a disclosed non-event baseline.

Related topics

• Earnings options
• Earnings options no-trade checklist
• Implied volatility

Primary sources

• What Options Data May Indicate About Mag 7 Earnings
• Long Straddle
• Options Pricing
• Understanding the Bid and Ask Prices for Options
• Characteristics and Risks of Standardized Options
• Option Quotes
• Trading Options: Understanding Assignment
• Equity vs. Index Options