Recent earnings reactions highlight the potential for volatility: the stock jumped +5.8% after the July report (a beat), but dropped -6.2% in April (a miss). Implied volatility is currently at 27.2%, with an IV Rank of 49.9—meaning current implied volatility is elevated compared to its 12-month range.

In this article, we walk through three example strategies—each structured with risk controls—to illustrate how different outlooks can be expressed using options. These are just examples among many. The goal is to show what’s possible, not what’s best. Traders can adjust strikes, expiries, or even transition between strategies based on how the stock behaves post-earnings.

1. Example of a bullish approach: Diagonal call spread

Buy Nov 21 135 call, sell Oct 10 150 call – net debit $9.40

This diagonal spread combines a longer-dated call with a short-term one to express a modest bullish outlook. The long-dated option gives time for a trend to develop, while the short-dated call generates income by selling elevated implied volatility ahead of earnings. The structure benefits most when the stock rises gradually toward the short strike and implied volatility collapses after the event, allowing the short leg to expire worthless or be rolled for additional credit. It offers a way to stay engaged with a bullish view while reducing the impact of post-earnings volatility changes.

Educational insight:

• Selling the front-week call takes advantage of elevated implied volatility.
• The longer-dated call provides continued upside potential if PEP trends higher over time.
• Position benefits most if the stock rises gradually and stays near the short strike.

Scenario mechanics:

• Max loss: $940 (the debit paid) – occurs if PEP closes well below both strikes—typically meaning a sharp drop around or after earnings—and the long call loses most of its value by expiration.
• Max profit: $708 – occurs if PEP moves toward $150 into the Oct 10 expiry, allowing the short call to expire worthless while the long call retains value.
• Breakeven: ~$141.45
• Yield potential: ~75% return on risk if the stock rises gradually into the short strike
• Delta: ~ +0.51 (positive delta, indicating it's a bullish setup)

How to exit the trade:

• If the short call expires worthless and the long call retains value, the position can be kept open for further upside or closed entirely to lock in gains.
• Alternatively, the short call can be rolled to a later expiry to continue collecting premium while maintaining the long call exposure.
• If the stock moves sharply and quickly, closing both legs together post-earnings may simplify execution and lock in profits or limit further risk.

Things to monitor:

• If the stock rallies beyond $150, rolling the short call to a higher strike can help keep the structure working.
• If the stock stays under $145, traders could roll the short down to collect more premium.

Alternative bullish strategies to explore:

• Vertical call spreads (bull call spreads)
• Covered calls (if already holding the stock)
• Call ratio spreads
• Synthetic long stock via calls and puts
• Cash-secured puts (to acquire stock at a discount)

2. Example of a neutral strategy: Short iron condor

Sell 135/130 put spread and 150/155 call spread (Oct 10 expiry) – net credit $1.26

This strategy is designed for traders who expect the stock to stay within a defined range after earnings. It aims to take advantage of time decay and elevated implied volatility by selling both a call spread and a put spread. By placing the short strikes just outside the expected move, this structure benefits if the stock remains relatively quiet after the report. The defined wings ensure risk is capped even if the stock breaks out beyond expectations.

Educational insight:

• This setup uses elevated IV to collect premium.
• By placing short strikes just outside the expected move, the position attempts to profit from containment.
• Defined wings limit potential loss if the stock breaks out.

Scenario mechanics:

• Max profit: $126 – occurs if PEP closes between $135 and $150 on expiry (Oct 10), allowing all four legs to expire worthless.
• Max loss: $374 – realized if PEP closes below $130 or above $155, resulting in full loss on one spread minus the credit received.
• Breakevens: ~$133.74 and ~$151.26 – loss begins if the stock moves outside this range.
• Yield potential: ~34% return on risk if PEP stays within range
• Delta: ~ 0.00 (delta neutral, indicating it's a neutral setup)

How to exit the trade:

• Many traders target an early exit if 50% of the max profit is reached quickly, which improves consistency and reduces risk.
• If the stock approaches either short strike before the report, consider adjusting or closing that side to cut directional exposure.
• Post-earnings, if the stock remains inside range and volatility drops sharply, closing the position can capture most of the potential gain.

Things to monitor:

• With earnings risk, managing the condor may involve closing one side early if price challenges a boundary.
• Condors often benefit from a quick post-earnings volatility crush.

Alternative neutral strategies to explore:

• Calendar spreads (at-the-money)
• Short straddles or strangles (for experienced traders with sufficient margin)
• Long butterflies (tight range targeting)
• Iron butterflies (premium-rich, centered approach)

3. Example of a bearish structure: Put debit spread

Buy 140 put, sell 130 put (Oct 17 expiry) – net debit $2.35

This strategy is designed for traders anticipating a significant move lower following the earnings announcement. It offers a defined-risk way to express a bearish view, while reducing the cost of entry compared to buying a put outright. By selling a lower-strike put, the trader lowers their total premium outlay while still benefiting from downward price movement.

Educational insight:

• The long put profits if the stock drops, while the short put limits potential gains but reduces upfront cost.
• The structure can benefit from a quick move lower after the event.
• Useful for those wanting bearish exposure with a defined and limited downside.

Scenario mechanics:

• Max loss: $235 – occurs if PEP closes above $140 at expiry, making both options worthless.
• Max profit: $765 – achieved if PEP drops below $130 by Oct 17 expiry.
• Breakeven: $137.65 – the point below which the trade begins to show profit.
• Yield potential: ~325% return on risk if PEP drops below $130
• Delta: ~ -0.27 (delta negative, confirming it's a bearish setup)

How to exit the trade:

• If PEP drops sharply post-earnings and the spread gains value quickly, consider closing the trade early to lock in gains before time decay sets in.
• Many traders exit if they capture 50–70% of the max potential profit quickly.
• If the trade goes against you, loss is capped at the initial debit paid.

Things to monitor:

• Directional movement post-earnings is critical—this trade needs a sharp drop.
• Time decay accelerates after earnings; if no move occurs, the trade may decay quickly in value.

Alternative bearish strategies to explore:

• Buying long puts outright (higher cost, higher reward)
• Put ratio spreads (limited risk, partial upside)
• Bear call spreads (alternative way to express downside with credit)
• Short stock (requires margin, carries unlimited risk)

So, should you go bullish, neutral, or bearish?

This is a common question in the run-up to earnings. And while it's tempting to search for the "best" view, the real value of this article lies elsewhere. We’re not here to tell you what direction to pick. Instead, our goal is to show how different market views—bullish, neutral, or bearish—can be expressed using defined-risk option strategies.

Your job as an investor is to form your own outlook based on your research, goals, and risk tolerance. Once you have a view, options can help you express it in a structured, risk-aware way.

That said, this earnings setup does offer a strong learning opportunity. With an IV Rank of 49.9, implied volatility is moderately elevated, especially in short-term options. Earnings often bring a sharp drop in IV—helping those who sell front-end premium while hurting those who pay for it. Understanding this dynamic is key to evaluating risk/reward around events like this.

Final thoughts

The strategies above illustrate how different views—bullish, neutral, and bearish—can be expressed using defined-risk option structures. Each trade has its own risk/reward profile, sensitivity to volatility, and management style.

None of these are recommendations. They are examples to help you learn how different combinations of strikes and expirations behave in a high-volatility earnings context.