Earnings Season Can Be the Most Profitable Time for Covered Call Writers — Or the Most Dangerous
Every quarter, like clockwork, the market enters a six-week window where nearly every major stock reports its earnings. And every quarter, I get the same question from students: “Mark, should I keep my covered calls open through earnings, or close everything and sit on the sidelines?”
It’s the right question. Earnings announcements are the single biggest source of overnight gap risk for covered call writers. A stock can move 5%, 10%, even 15% in a single after-hours session — and your covered call premium isn’t going to cover a move like that. At the same time, earnings season is when implied volatility is at its highest, which means option premiums are at their fattest. The Juice is flowing.
So what do you do? After decades of navigating earnings seasons with my Cash Flow Machine system, I can tell you there’s a right way and a wrong way to handle this. And the right way starts with understanding what actually happens to your options when a company reports.
Why Earnings Reports Create Unique Risk for Covered Call Writers
Under normal conditions, stocks move gradually. Your covered call decays a little each day, you collect theta, and the process is predictable. But earnings announcements are not normal conditions. Here’s what makes them different:
Gap Risk
Companies report earnings after the market closes or before it opens. The stock reacts instantly in after-hours trading. If the report is disappointing — or even if the numbers are fine but the guidance is weak — the stock can gap down 8-12% before you have any chance to react. Your covered call premium of $2.00 or $3.00 per share does nothing against a $15 gap down. That’s months of income wiped out in one night.
The IV Crush
In the weeks leading up to earnings, implied volatility on options rises as traders anticipate the unknown. This elevated IV inflates option premiums — sometimes dramatically. After the earnings are released, the uncertainty disappears and implied volatility collapses. This is called the IV crush. The option’s time value can drop 30-50% overnight, even if the stock barely moves. If you’re a covered call seller, this can work heavily in your favor — but only if you know how to position for it.
Assignment Risk
If the stock jumps above your strike price on a strong earnings beat, your shares may be called away. Early assignment becomes particularly likely if there’s a dividend payment approaching and your call is deep in the money. For income investors who want to keep their shares, this is a meaningful risk during earnings.
Three Approaches to Earnings Season
There’s no single correct answer for every investor. The right approach depends on your risk tolerance, your experience level, and whether you’re running Fortress, Balance Point, or Rocket positioning. Here are the three frameworks I teach inside Cash Flow Machine.
Approach 1: Avoid Earnings Entirely (Fortress Mindset)
This is my default recommendation for newer covered call writers and anyone running the Fortress strategy. The rule is straightforward: do not have an active short call position over an earnings announcement.
In practice, this means:
- Before selling a new covered call, check the earnings calendar for your stock
- If earnings fall within your option’s expiration window, either shorten the duration (use a weekly that expires before earnings) or wait until after the report to sell
- If you already have an open covered call and earnings are approaching, buy back the call before the announcement — even at a small loss — to eliminate the gap risk
The legendary options educator Alan Ellman at The Blue Collar Investor has demonstrated this approach effectively using weekly options. For example, if you’re holding AAPL through a 5-week monthly cycle and earnings fall in week 3, you sell a weekly covered call for week 1 only, skip weeks 2-3 (the earnings zone), and then re-enter after the report in week 4. You collect less total premium, but you avoid the one event that can do catastrophic damage to your position.
Approach 2: Sell Before Earnings for the IV Crush (Balance Point Mindset)
This is the more aggressive approach, and it’s the one experienced students often use with their Balance Point positions. Here’s the logic:
Before earnings, implied volatility is elevated — often 30-50% higher than normal for that stock. This means the covered call premium is significantly richer than what you’d normally collect. If you sell a covered call during this high-IV window, and the stock doesn’t move dramatically after earnings, the post-earnings IV crush causes the option’s value to collapse. You can then buy back the call cheaply and pocket the difference.
IV Crush Example on a $180 Stock
| Timing | Action | Premium |
|---|---|---|
| 5 days before earnings | Sell $190 covered call (30-day expiration) | $5.50 collected ($550) |
| Normal IV premium for same call | — | $3.00 ($300) |
| Day after earnings (stock moves to $178) | Buy back call | $1.20 paid ($120) |
| Net profit | $4.30 ($430) in 6 days |
In this hypothetical illustration, you collected $550 in premium on a call that was worth only $300 under normal conditions — the extra $250 was pure IV inflation. After earnings, the IV collapsed and the stock barely moved, allowing you to close the position for $120. Your net profit of $430 in 6 days is exceptional.
But here’s the catch: if the stock had gapped down to $160 on a bad earnings report, your covered call profit of $430 would be completely overshadowed by an unrealized loss of $2,000 on the stock. The premium helped, but it didn’t come close to covering the damage. This is why I only recommend this approach for experienced traders who understand position sizing and have the discipline to select quality stocks with predictable earnings patterns.
Approach 3: Sell After Earnings (Rocket Mindset)
For investors running the Rocket strategy — where you want maximum upside participation — the smartest play is often to wait. Let the earnings come and go. Let the stock react. Then, once the dust settles and the direction is clear, sell your covered call into the newly established trend.
The advantage: you can see the stock’s post-earnings level, the new support and resistance zones, and the reduced IV environment. You make a much more informed decision about strike selection. The disadvantage: you missed the elevated premium window, so your collected premium will be lower.
For Rocket positioning, this trade-off is usually worth it because you’re prioritizing upside capture over premium income.
My Earnings Season Checklist
Regardless of which approach you use, I recommend every covered call writer follow these steps during earnings season:
- Mark every earnings date for every stock in your portfolio on a calendar. Do this at the beginning of each quarter. No surprises.
- Decide your approach for each position — avoid, sell before, or sell after. This is not a decision you make the day before earnings. Plan it two weeks in advance.
- Check IV rank for each stock. If IV is in the top 30% of its 52-week range heading into earnings, the premium is elevated enough to consider the IV crush play. If IV isn’t elevated, the extra risk isn’t justified.
- Use weekly options when available to navigate around earnings dates. Weeklys give you the ability to sell a call that expires before earnings, avoiding the gap entirely while still collecting premium during the non-earnings portion of the cycle.
- Never let a covered call run through earnings unmonitored. If you can’t actively manage your positions during earnings week, close everything beforehand. The 20-minute-per-week system works — but you need to actually spend those 20 minutes.
Risk Management: Position Sizing During Earnings Season
If you do decide to hold covered calls through earnings, the single most important risk control is position sizing. During earnings season, I recommend reducing your maximum position size from 20-25% to no more than 15% of your portfolio per stock. This ensures that even a worst-case 15% gap on one stock doesn’t devastate your overall portfolio income.
Also consider your sector exposure. Technology companies tend to report in clusters — if you hold covered calls on four tech names and they all report in the same week, you’re carrying correlated earnings risk across nearly your entire portfolio. Stagger your exposure, or reduce it for the duration of the reporting window. My post on building a covered call portfolio covers this in detail.
Frequently Asked Questions
Should I sell covered calls before or after earnings?
For most income investors, selling after earnings is the safer choice. You eliminate gap risk entirely and can make more informed strike selection decisions once you see the post-earnings price level. Selling before earnings gives you a richer premium due to elevated IV, but you’re accepting significantly more risk. My recommendation is to start with the post-earnings approach until you have at least 6-12 months of covered call experience, then gradually experiment with pre-earnings IV crush trades on your most predictable holdings.
What happens if my stock gaps up past my strike price on earnings?
If the stock rallies above your short call strike, you’ll likely be assigned. Your shares will be sold at the strike price. You keep the full premium plus any appreciation from your purchase price to the strike price — so it’s still a profitable outcome. If you want to keep the stock, you’ll need to buy back the call before expiration (usually at a loss, since it’s now in the money) and potentially roll it up and out. My guide on covered call assignment walks through all the scenarios.
How do I find earnings dates for my stocks?
Most brokerage platforms display upcoming earnings dates directly on the stock’s option chain page. You can also use free earnings calendars at services like Earnings Whispers, Yahoo Finance, or MarketWatch. I recommend checking earnings dates every Sunday when you do your weekly portfolio review, and flagging any stocks that report within the next 30 days. This simple habit prevents the most common earnings-season mistake: being surprised by a report you didn’t know was coming.
Can I use the collar strategy to protect through earnings?
Absolutely, and this is one of the smartest approaches for investors who want to hold through earnings while limiting risk. Buy a protective put below the current price while keeping your covered call in place. The collar caps your downside at the put strike. If the stock gaps down on earnings, your put absorbs the loss below that level. I cover the collar mechanics in my post on the collar strategy for options investors. The cost of the put is partially or fully offset by the inflated premium you collect on the call — making it a natural earnings-season hedge.
Turn Earnings Season Into an Advantage
Earnings season doesn’t have to be a threat to your income machine. With the right preparation — knowing your dates, choosing your approach for each position, managing your position sizes, and using weekly options to navigate around earnings windows — it can actually be one of the most productive periods for covered call writers.
The key is having a plan before the first company reports. Not a vague idea. A written, position-by-position plan.
If you want to learn the complete system — including how I manage earnings season across Fortress, Balance Point, and Rocket strategies — watch the Free MasterCourse at CashFlowMachine.net. It walks through the entire framework, from stock selection to monthly management to earnings navigation.
For additional strategies, visit CashFlowMachine.io and explore the educational library on the Cash Flow Machine YouTube channel.
Related reading: Implied Volatility and Covered Calls and When to Close a Covered Call Early.
The information in this article is for education and information purposes only. This is not financial advice. Past performance does not guarantee future results. All examples are hypothetical illustrations and do not represent actual trades or a guarantee of specific outcomes. Always consult a licensed financial professional before making any investment decisions.