If I had to identify a single mistake that's responsible for most covered call disasters, it would be writing through earnings.
It's not assignment. It's not bad strike selection. It's not rolling at the wrong time. It's the specific decision to write a call whose expiration window includes an earnings announcement, drawn in by the inflated pre-earnings premium and not paying enough attention to the historical post-earnings move.
This post explains why writing through earnings is so reliably bad, what the math actually says, and the simple discipline that prevents the issue.
Why Pre-Earnings Premium Looks So Attractive
In the 1-2 weeks before an earnings announcement, implied volatility on near-dated options expands. The market is pricing in the expected post-earnings move, which is usually larger than typical week-to-week volatility.
The result: a 30 DTE 0.20 delta call on AAPL might pay $200 in premium during a normal month and $400 during the week before earnings. Same delta, same DTE, double the premium. The pre-earnings expansion can be 1.5-3x normal premium depending on the stock.
For a covered call seller looking at the option chain, the pre-earnings number is intoxicating. "Wait, I can collect twice as much premium for the same trade?" The temptation is real. The math is wrong.
What's Actually Happening
The IV expansion isn't a free lunch. The market is pricing in expected post-earnings movement. The premium is higher because the underlying is expected to move more than usual.
Specifically:
- Pre-earnings IV reflects an expected post-earnings move of X%.
- That X% is the market's best estimate of how much the stock will move on the print.
- The premium expansion roughly equals the expected move's impact on the option's value.
So when AAPL's pre-earnings IV expansion gives you 2x the premium, the market is signaling that AAPL is expected to move 2x more than normal in the relevant window. You're collecting the extra premium and accepting the extra expected move.
The math is roughly fair (or slightly negative for the call seller after vol crush). The problem isn't that the trade is mathematically bad in the perfect-information sense — it's that the realized outcome is bimodal, and the bad cases are very bad.
Average vs. Tail
Here's the data on big-tech earnings moves over the past 3 years:
| Ticker | Average Post-Earnings Move | 90th Percentile Move | |---|---|---| | AAPL | ±3-5% | ±7% | | MSFT | ±4-5% | ±8% | | GOOGL | ±5-7% | ±12% | | AMZN | ±5-8% | ±14% | | META | ±8-12% | ±20% | | NVDA | ±8-12% | ±20% | | TSLA | ±8-12% | ±18% |
For each of these, the pre-earnings premium typically prices in roughly the average move. Sometimes the realized move is smaller and the call seller wins. Sometimes the realized move is much larger (the 90th percentile cases), and the call seller loses badly.
The expected value across many trades is roughly fair. The problem is the distribution. The bad outcomes are concentrated and large. A single bad earnings print can wipe out months of premium income.
For me, the practical math: I'd rather skip 4 earnings cycles per year per stock and accept lower total premium income than expose myself to the tail risk of the bad prints. Over a multi-year period, the avoid-earnings discipline produces lower variance and roughly comparable total return.
The Specific Failure Modes
Writing through earnings can fail in two distinct ways:
Failure Mode 1: Stock spikes through your strike.
Pre-earnings call written at $230 strike on AAPL trading at $215. Earnings beat, AAPL gaps to $245. Your call is deep ITM, you're assigned at $230, AAPL closes at $245. You realized a $15/share lower selling price than you would have if unencumbered. The premium ($400) doesn't make up for the $1,500 of upside you missed.
This is the "missed upside" failure. You're not technically losing money — your trade was profitable, you sold at strike and kept the premium. But you missed a significant gain you would have captured holding unencumbered shares.
Failure Mode 2: Stock drops sharply on bad earnings.
Pre-earnings call written at $475 strike on META trading at $445. Earnings miss, META drops to $385. Your call expires worthless (you keep the premium). But your underlying position dropped $60/share, $6,000 per 100 shares. The $620 premium you collected covers about 10% of the drawdown.
This is the "underlying loss" failure. The call performed well (expired worthless). The underlying loss dwarfs the premium you collected.
In Failure Mode 1, the strategy has a small dollar gain but a large opportunity cost. In Failure Mode 2, the strategy reduces the loss by a fraction but doesn't prevent it. Both are bad cases — and they happen roughly 25-40% of the time on any given earnings print, depending on the stock.
The Discipline
The rule is simple: don't write a call whose expiration window includes an earnings date.
That's it. Skip the cycle around earnings. Open a fresh contract two days after the print, when IV has crushed and you can write into a clean cycle.
For most large caps, this means skipping ~3 weeks of premium income per quarter — about 12 weeks per year. That's a meaningful chunk of annual income, but it's the cost of avoiding the tail risk.
If you absolutely cannot stand sitting on the sidelines around earnings, two compromise approaches:
Compromise 1: Write an ultra-short DTE call expiring before earnings.
If earnings are January 24, you could write a call expiring January 17 (7 days before earnings). The contract closes before the print and you skip the earnings exposure. You're collecting smaller premium per cycle but you're never exposed.
This works on stocks with earnings 30+ days in the future. As earnings approach, the available "before earnings" expirations get shorter and the premium gets smaller.
Compromise 2: Use cash-secured puts instead of covered calls during earnings cycles.
If you'd be willing to add to your position at lower prices, sell CSPs into the inflated pre-earnings IV. The IV expansion benefits sellers symmetrically, and a CSP that gets assigned during a post-earnings drop means you're buying more of a stock you wanted at a lower price. The trade flips the directionality of the earnings risk.
For more on this approach, see Covered Calls vs Cash-Secured Puts.
Why This Mistake Persists
Despite being well-known, this mistake keeps happening. A few reasons:
The premium is genuinely big. Looking at "normal" premium ($150) vs "pre-earnings" premium ($400), the temptation is real. New sellers especially have trouble walking away from 2-3x premium without understanding the tradeoff.
Recent biases. If the last 2 quarterly earnings on a stock were quiet (small moves, premium captured fully), the writer extrapolates and assumes the pattern continues. Then a big quarter happens and the loss eats months of accumulated gains.
The opportunity cost of skipping earnings is invisible. When you skip a cycle, you don't see the premium you didn't collect. When you write through and lose, you see the loss. The asymmetry of visibility makes "writing through" feel costless and "skipping" feel painful — even when the math is the opposite.
Some prints reward the writer. Writing through earnings sometimes works. The stock barely moves, IV crushes, the call decays fast, and the writer captures inflated premium. This positive reinforcement keeps the bad behavior alive. The trades that work get remembered; the trades that fail get rationalized.
What Tooling Gives You
A screener that flags earnings windows is the simplest possible defense against this mistake. If your tool shows "earnings within expiration" on a contract before you write it, you can't accidentally walk into a print.
Myron does this automatically — every screened contract gets an earnings flag if there's an announcement within the expiration window. The flag is visible in the screen results so the avoid-earnings rule is enforced at the moment of decision, not after the fact.
You don't need a specific tool. A calendar with earnings dates marked works. The point is making the check non-optional in your workflow.
A Word on the Inverse Trap
There's a less common but related mistake: avoiding earnings so rigidly that you also avoid normal positions on stocks that have recently reported. A stock that printed yesterday isn't dangerous — IV has crushed, the move has happened, and the next earnings is 90 days out. The week after earnings is actually one of the best times to write a fresh covered call.
The discipline isn't "avoid stocks with earnings." It's "avoid contracts whose expiration windows include earnings." Subtle but important difference.
For ticker-specific earnings strategy, see META Covered Calls, NVDA Covered Calls, AAPL Covered Calls, and MSFT Covered Calls.