Options markets systematically overprice earnings moves. This study tests whether that overpricing is large enough and consistent enough to profit from, using short ATM straddles on the Magnificent Seven across Q1 2019 through Q3 2025.
In the days leading up to earnings, implied volatility rises as market participants pay up for optionality. Once earnings are released, the uncertainty resolves and IV collapses, regardless of whether the stock moves up or down. A short straddle profits when the actual stock move is smaller than the move priced into the straddle at entry. That gap is the IV crush.
The universe is restricted to the Magnificent Seven (AAPL, MSFT, NVDA, AMZN, GOOGL, META, TSLA) for three reasons: deep options liquidity, well-defined quarterly earnings calendars, and sufficient OptionMetrics history to produce 27 events per ticker over the study window.
Options data was sourced from OptionMetrics IvyDB via WRDS (optionm.opprcd{year}). End-of-day closing bid and ask quotes were used to compute the mid-price straddle cost, serving as a proxy for the 3:45–4:00pm entry price. Earnings announcement dates were obtained from the IBES Actuals database (ibes.act_epsus), with ticker corrections applied for Alphabet (GOOG) and Meta (FB).
| Dimension | Detail |
|---|---|
| Universe | AAPL, MSFT, NVDA, AMZN, GOOGL, META, TSLA |
| Period | Q1 2019 to Q3 2025 (27 events per ticker, 189 total) |
| Instrument | ATM short straddle on nearest weekly expiry covering the earnings date |
| Entry | Approximately 30 minutes before market close on earnings day (end-of-day OM quote used as proxy) |
| Exit | Following afternoon, valued at intrinsic value (absolute stock move) |
| P&L | Gross, excluding bid-ask spread and commissions. Slightly overstates profitability on wins |
| Margin | 20% of notional (spot × 100) per contract, per standard broker requirements |
| Data | OptionMetrics IvyDB and IBES Actuals via WRDS |
Across 189 earnings events from Q1 2019 through Q3 2025, the strategy produced a combined total P&L of $682 trading one contract per event, essentially break-even. The aggregate result masks extreme cross-sectional dispersion: four of seven stocks generated positive total P&L, while AMZN, GOOGL, and META were net destroyers of capital, with AMZN alone accounting for a $22,304 loss driven by a catastrophic 2022 drawdown.
Stocks where implied exceeds realised exhibit systematic IV overpricing, the precondition for a profitable short straddle. META is the only stock where realised moves consistently exceeded implied.
No stock combines a win rate above 70% with a payoff ratio above 1.0. NVDA leads on win rate (74.1%) but its payoff ratio of 0.48x means each loss averages 2x the average win. TSLA has the highest payoff (2.17x) but only a 51.9% win rate, driven by outsized winners in 2020–2021.
The strategy’s profitability is demonstrably non-stationary. Results vary dramatically by year and by ticker, driven by shifts in realised volatility, macro regimes, and company-specific fundamentals. Select a ticker below to view its annual P&L.
| Ticker | Win% | Avg Edge% | Payoff | Sharpe | Sortino | Calmar | Max DD | Skew | Kurt | ROM% |
|---|---|---|---|---|---|---|---|---|---|---|
| AAPL | 66.7% | 0.99% | 0.970 | 1.925 | 2.237 | 0.217 | −$2,655 | −2.848 | 9.926 | 4.30% |
| MSFT | 63.0% | 1.05% | 0.941 | 1.463 | 2.730 | 0.173 | −$2,948 | −0.078 | −0.394 | 3.05% |
| NVDA | 74.1% | 1.79% | 0.476 | 1.309 | 1.152 | 0.111 | −$7,130 | −1.498 | 2.723 | 6.60% |
| AMZN | 59.3% | 0.19% | 0.466 | 0.200 | 0.316 | −0.068 | −$48,819 | −1.253 | 2.065 | 0.65% |
| GOOGL | 51.9% | 0.37% | 0.801 | 0.050 | 0.098 | −0.040 | −$17,078 | 0.008 | 0.644 | 0.15% |
| META | 55.6% | −1.34% | 0.566 | −1.172 | −1.263 | −0.071 | −$14,434 | −1.079 | 1.348 | −7.44% |
| TSLA | 51.9% | 0.50% | 2.170 | −0.079 | −0.109 | 0.327 | −$9,882 | 1.945 | 5.153 | −0.41% |
ROM = Return on Margin per trade. Sharpe, Sortino, Calmar computed on a per-trade basis. Skewness below −1 and kurtosis above 3 indicate meaningful tail risk.
NVDA leads on win rate (74.1%), avg edge (1.79%), and return on margin (6.60%), the strongest combination of any ticker in this study. The Sharpe of 1.31 reflects a genuine, persistent edge. The caveat is the payoff ratio of 0.48x: each losing trade is on average 2x the size of a winning trade, so the win rate must stay high for the strategy to remain profitable. The 2024 drawdown (−$4,314) and kurtosis of 2.72 reflect this tail risk. NVDA is best deployed when current implied moves appear elevated relative to historical realisation rates.
AAPL delivers the highest Sharpe ratio in the study (1.93) with the shallowest max drawdown (−$2,655). A 66.7% win rate and avg edge of 0.99% are modest but consistent across all seven years. The 2025 result (+$1,451) confirms the pattern has held into the extended sample. The critical warning: skewness of −2.85 and kurtosis of 9.93 are the most extreme in the study. Rare but severe outlier losses can negate multiple years of gains. Strict position sizing is required.
MSFT still shows a real edge: Sharpe 1.46, Sortino 2.73, and the second-shallowest max drawdown in the study (−$2,948, behind AAPL’s −$2,655). However, the 2025 data changed the story materially. Win rate dropped from a prior 75% to 63.0%, and 2025 was MSFT’s first losing year in this study (−$2,411). Total P&L of $3,436 over seven years is thin relative to the capital commitment. The old characterisation of MSFT as the single best expression of this strategy no longer holds. It remains a reasonable trade with tight risk control, but not the dominant pick.
TSLA accounts for $21,827 of the combined $682 total, making it the single driver of the study’s headline result. A payoff ratio of 2.17x with a 51.9% win rate produced a net profit, but the distribution is extreme: nearly all gains came from 2020–2021. From 2022 through 2024, TSLA went 6 for 16 (37.5% win rate) and lost $7,689 across those three years. 2025 recovered slightly (+$2,670). A trader running this strategy on TSLA since 2022 would be net negative. The edge existed in a specific macro regime and has not consistently re-emerged.
GOOGL produced a total loss of −$4,583 across 27 events (Sharpe 0.05, Calmar −0.04). The market prices GOOGL earnings moves fairly on average: implied (5.52%) and realised (5.14%) are close, leaving minimal edge. Large single-year losses in 2019 (−$4,317) and 2021 (−$5,778) dominate the outcome. A win rate of 51.9% with a payoff ratio of 0.80x confirms the structural difficulty. There is no statistical basis for running this strategy on GOOGL.
META is a clear avoid. The avg realised move (8.90%) exceeded the avg implied move (7.56%), meaning options systematically underpriced earnings moves. The avg edge is −1.34%, second worst in the sample. The 2022 destruction (−$7,673 in one year) reflects META’s extraordinary fundamental repricing. Sharpe of −1.17 and ROM of −7.44% per trade are among the worst in the study. 2025 showed a partial recovery (+$1,472) but not enough to offset the structural negative edge.
AMZN is the most structurally dangerous ticker in this study. Despite a 59.3% win rate, AMZN produced a total loss of −$22,304 driven by 2022 (−$36,920 in a single year). The payoff ratio of 0.47x means losses are on average 2x larger than wins. The max drawdown of −$48,819 would require roughly 15 average winning trades to recover. 2019 (+$12,066) and 2021 (+$9,747) were large positive years, but the 2022 destruction wiped out both and then some. Do not run this strategy on AMZN.
The combined P&L across 189 events and seven years is $682, essentially flat. That headline conceals wide dispersion: TSLA accounts for $21,827 of gains and AMZN accounts for $22,304 of losses. Remove those two outliers and the remaining five tickers sum to +$1,159, or roughly $166 per ticker per year. This is not a general edge; it is a narrow, stock-specific trade that requires careful selection.
If forced to pick one ticker, AAPL is the most defensible choice: the highest Sharpe (1.93), the shallowest max drawdown in the study (−$2,655), and seven years of consistently positive aggregate results. The fat tail (kurtosis 9.93) demands that position sizing treat this as a rare-blowout strategy rather than a steady income stream. NVDA is the higher-conviction pick for traders comfortable with a 0.48 payoff ratio contingent on maintaining a 74% or higher win rate.
For live deployment: run pre-trade screens comparing the current ATM straddle price against the historical distribution of realised earnings moves for that specific ticker. Any event where the current implied move falls below the 40th percentile of historical realised moves should be skipped. Do not run the strategy indiscriminately across all seven tickers: the portfolio-level result is near zero and AMZN and GOOGL drag materially.