Maximizing Stock Earnings with Options: A Practical Guide with Backtesting Code

Trading stock earnings with options can be a powerful strategy for capturing profits during periods of high volatility. This article will explore how to use options for trading stock earnings and provide a step-by-step guide for backtesting this strategy with code examples. By the end of this guide, you’ll have a clear understanding of how to implement this strategy and measure its effectiveness.

Understanding Earnings Reports and Market Reaction

Earnings reports are quarterly statements released by companies to inform investors about their financial performance. These reports often cause significant stock price movements due to surprises — when the actual earnings deviate from market expectations. Traders can exploit these movements using options, which allow them to take advantage of price swings with limited risk.

Common strategies for trading earnings:

1. Straddle: Buy both a call and a put option at the same strike price and expiration date, betting on a large move in either direction.
2. Strangle…