There are many options strategies available to play earnings.
Today, we will look at a lesser-known strategy, but one that gives the investor good protection when the trade goes wrong.
Because when trading earnings, the biggest threat is a sharp move against your position, and this strategy is specifically designed to limit that risk so that the gains can outpace the losses.
Contents
- Winning Example
- Result Of Earnings
- Increasing Positive Expectancy
- When Stock Goes The Wrong Way
- Take Profit On Bear Call Spread
- Rolling The Covered Call Strike Down
- Don’t Forget The Dividend
- Conclusion
Winning Example
Without further ado, let’s dive into an example using the collar options strategy.
Alphabet (formerly known as Google) with ticker symbol GOOGL was scheduled to report earnings on April 29th, 2026, after the market closes.
An investor with bullish sentiment buys 100 shares of GOOGL, hopeful that the stock will gap up the next day.
Date: April 29, 2026
Buy 100 shares of GOOGL at $350.79 per share
Net debit: -$35,079
If the stock gaps up to $380, the investor stands to make nearly $3,000.
But if the stock gaps down by 30 points, he stands to lose $3,000.
This is quite a gamble as the direction of the earnings move is as unpredictable as a coin toss.
An investor is not a gambler. So to protect his downside risk, he buys an at-the-money put option…
Date: April 29, 2026
Buy to open one contract on June 18th, GOOGL $350 put
Net Debit: $1,675
This ensures that he can sell back 100 shares of GOOGL at $350 per share at any time before expiration, which is 50 days from now.
But the $1,675 debit is a hefty price to pay for this protection.
Also, this position incurs a negative theta of -17 even if the stock does not move.
He sells a covered call above the current stock price to take in a credit to help finance the cost of the put option.
Date: April 29, 2026
Sell to open one contract on June 18th, GOOGL $355 call
Net credit: $1,692
The sale of the call option fully covers the cost of the put option.
It is as if he gets protection for free.
Also, the theta has flipped from positive to +1.82. So now the time is in the investor’s favor.
The tradeoff is that his upside profit potential is capped.
The net position delta is +4.00. The position is equivalent to owning 4 shares of GOOGL stock instead of 100.
Hence, even if the stock goes up, the gain will not be as large as it would be if the investor held 100 shares.
The resulting position is known as a collar because the trade has a defined downside risk and a capped upside potential.
The net debit paid for this position is…
-$35,079 – $1,675 + $1,692 = -$35,062
In the worst-case scenario where GOOGL stock drops to inconceivable levels, the investor will still be able to sell his 100 shares at $350 per share.
Therefore, the max risk in this trade is literally $62.
-$35,062 + $35,000 = -$62
The investor is ready for whatever happens as a result of the earnings announcement.
Result of Earnings
The following morning after the earnings announcement, GOOGL gapped up to $374 per share and continued to rise.
The P&L of the trade in the morning is $70.
At the end of the day, the P&L is $135, as GOOGL reached $381.
Considering the capital used is about $35,000, that would be a quick 0.4% return in one day.
$135 / $35,000 = 0.4%
Note that in this example, profit is already greater than the maximum possible loss.
If the investor can repeat this multiple times, he can be profitable over the long run even if he loses half the time and wins half the time.
There will be positive expectancy as long as the average win is larger than the average loss.
The investor can choose to take this quick profit or hold for more.
Increasing Positive Expectancy
We can increase this positive expectancy by pushing our winners for larger wins.
One week later, GOOGL’s price continued to climb as theta profit also accumulated, resulting in a profit of $230, or a 0.6% return.
The investor can choose to take this larger profit now.
Or, if the investor believes that GOOGL will stay above the $355 short call strike at expiration, he can hold until expiration and realize the maximum profit potential.
The max profit potential is when the 100 shares of stock are called away at $355 per share.
Max profit potential:
$35,500 – $35,062 = $438 in 50 days
$438 / $35,000 = 1.25% return on capital in 50 days
1.2% / 50 * 365 = 9.13% annualized
When Stock Goes the Wrong Way
We can further increase our profit expectations by never having to take the maximum loss on the trade. Here is another example.
An investor has the following collar on Charles Schwab Corp (SCHW):
Date: April 15, 2026
Sell to open one July 17th SCHW $105 call @ $3.28/share
Buy 100 shares of SCHW @ $99.48/share
Buy to open one July 17th SCHW $100 put @ $5.54/share
Net debit: -$9,948 – $554 + $328 = -$10,174
Max risk: -$10,174 + $10,000 = -$174
The next morning, the stock gapped down to $95.
The trade is showing a P&L of -$70.
The investor sells a bear call spread…
Date: April 15, 2026
Buy to open one contract July 17th SCHW $110 call @ $0.92
Sell to open one contract July 17th SCHW $105 call @ $1.82
Net Debit: $90
By selling the bear call spread, the investor collected a $90 credit, which helps whittle down the original debit.
This reduced the max risk in the trade from $174 down to $84.
Now the investor can sit and wait here (theta is positive) to see if the stock comes back up into the expiration graph tent.
One of the benefits of the longer days until expiration is that it allows time for the stock to make such a move.
Take Profit on Bear Call Spread
No such luck. One week later, SCHW dropped further to $90.74.
The investor decided to take profit on the bear call spread by paying $43 to close it.
Date: April 23, 2026
Sell to close one contract July 17th SCHW $110 call @ $0.38
Buy to close one contract July 17th SCHW $105 call @ $0.81
Net debit: -$43
Because of the debit adjustment, the maximum risk in the trade has increased to $127.
$84 + $43 = $127
But because the investor felt that this was as low as the stock would go…
He had decided to take profit on the bear call spread before the stock went back up.
Also, he wanted to exit the bear call spread to allow for the next adjustment.
Rolling the Covered Call Strike Down
During the next week, the stock crept back up a little…
On May 4th…
He saw that he could roll the $ 105 strike call option down to the $100 strike for a credit of $85.
Date: May 4th, 2026
Buy to close one contract July 17th SCHW $105 call @ $0.70
Sell to open one contract July 17th SCHW $100 call @ $1.55
Net Credit: $85
This reduces the max risk in the trade to $42.
$127 – $85 = $42
What he has now is…
100 shares of stock
Short call at the $100 strike
Long put at the $100 strike
If the stock price is below $100 per share, the long put will be in effect, and he can sell his shares at $100 per share.
If the stock price is above $100 per share, the stock will be called away at $100 per share.
That means his stock will be sold at $100 per share at expiration, regardless of the stock price.
If that is the case, what will his final P&L be?
Initial debit for the collar: -$10,174
Sell the bear call spread: $90
Close the bear call spread: -$43
Roll down the call: $85
Sell 100 shares at $100/share: $10,000
Net P&L: -$42
So if the investor just holds this position till expiration, the investor ends up losing only $42, which is exactly what the model shows…
And that is also the current max risk in the trade.
Don’t Forget the Dividend
But wait! SCHW has an ex-dividend date of May 8th, 2026.
The investor is a shareholder of record as of May 7th, which means he will receive $0.32 per share, or $32 in dividends.
So the actual net P&L would be a loss of only $10 plus some fees and commission.
Considering that a shirt costs more than that.
He didn’t lose his shirt in this earnings play that went in the wrong direction; at least he didn’t lose his whole shirt (maybe just the sleeves).
Conclusion
The collar option strategy can be structured to give the investor greater upside potential than downside risk.
When a collar faces a sharp move against the investor, there are several ways to manage the trade.
Selling a bear call spread brings in credit to offset the initial debit, reducing the maximum risk in the trade.
Additionally, rolling the short covered call down to a lower strike also generates extra credits.
The longer-dated options allow time for the investor to make such adjustments.
This strategy gives the investor multiple paths to reduce risk, improve the position, or even turn a losing setup into a manageable or breakeven outcome.
Ultimately, this is what enables the investor to have their gains outpace their losses, even in uncertain earnings plays.
The earnings collar may not deliver large wins, but when used across multiple earnings events, it tends to be very consistent with relatively low drawdowns.
We hope you enjoyed this article on the earnings collar strategy.
If you have any questions, send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
