Smart Money Strategies for Earnings Season: Insights from Shubham Agarwal

Smart Money Moves Before Earnings Season

Every quarter end is followed by a 45-day window known as the earnings season, where listed companies announce their financial results. For most retail traders, this period is a time of excitement, rumors, and bets on hearsay. However, it is not just bad luck that often leads to agony; it is bad timing.

Understanding Trader Behavior

Before a result announcement, institutions, high net worth individuals (HNIs), and smart money quietly build positions based on research and expectations. These positions show up in both equities and options. This is why stocks often move even before results are out.

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Options Market Trends Before Results

In the options market, something else happens. Expected Volatility, also known as Implied Volatility (IV), shoots up in the days before a result. This is because results can dramatically change a stock's price trajectory, so option sellers demand higher premiums to cover that risk. Option buyers pile in too, resulting in higher prices.

Smart Money's Strategy

By the time the result is announced, expectations are already priced into the stock. After the result, smart money exits. When large players exit together, supply floods the market and the stock falls even if the result is good.

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Retail Traders' Mistakes

Most retail traders enter after the result, or at best a day or two before. By then, the expectation is already in the price. There is very little upside left if results meet expectations, and significant downside if they disappoint. Trading the price trend around results is closer to a coin toss than a strategy.

Trading with Options

Options give you the edge here because they let you trade trader's behavior, not just stock price.

Before the Result

IV is rising, so option premiums are rising too. Stay on the buying side. Even if the stock moves against you, rising IV cushions your premium. Your loss is softened even if the stock hits your stop. This is the time to be aggressive, provided you plan to exit before the announcement.

After the Result

IV collapses. Traders who built positions before the result now exit. Premiums fall sharply. This is when selling options becomes attractive.

Strategies for Trading Options

If you want to take a directional bet, use a spread. Buy a Call and sell a higher Call, or buy a Put and sell a lower Put. The spread limits your loss from falling premiums while keeping you in the trade. After a day or two, IV settles back to normal.

The Takeaway

Result season is not about guessing whether a company will beat street estimates. It is about understanding where traders are positioned and how premiums behave around events. Most retailers never figure this out. That knowledge alone puts you ahead of them and in this market, that edge is everything.