Credit Spreads Around Earnings
A credit spread sells one option and buys a cheaper one further out. You collect a premium up front and keep it if the stock stays on your side of the short strike through expiration. Around earnings that premium is inflated, which is the appeal. The catch is the size of a loss: it is several times the credit, so a trade that wins most of the time can still lose money overall.
How the trade works
Take a stock at $100. A bull put spread sells the $95 put and buys the $90 put. Say the pair brings in $1.00 a share, or $100 for one contract. If the stock closes above $95 at expiration, both puts expire worthless and you keep the $100. If it closes below $90, you lose the $5 width minus the $1 you collected: $400. Between the strikes the result falls in between, and the break-even point is $94.
A bear call spread is the mirror image: sell a call above the price, buy a higher one, and keep the credit if the stock stays below the short strike. Either way the most you can make is the credit and the most you can lose is the width minus the credit, both known before you enter.
Why earnings week
Implied volatility climbs into a report and collapses right after it, a pattern explained in IV crush. A seller collects the inflated premium, and if the stock stays put the spread loses its value quickly once the report is out. The usual place for the short strike is outside the implied move, the swing the options market is pricing in, so the stock has to move further than the market expects before the trade loses.
The arithmetic that decides it
The credit you collect sets the win rate you need. In the example above you risk $400 to make $100, so if every loss were a full loss you would have to win four trades out of five just to break even. The general rule: with a credit of c on a spread of width w, a strategy whose losses are all full losses breaks even at a win rate of 1 minus c/w. A credit of a fifth of the width needs 80% wins; a tenth needs 90%. Losses that land between the strikes cost less than the full amount, which lowers the bar somewhat.
That is why, since 2026-09-22, the generator behind our earnings calls is told not to propose a credit spread that collects less than a fifth of its width, and a check before each analysis is published flags any play that does. Since 2026-10-04, in a week where fewer than two plays clear every check, it may propose up to two small bull put spreads at a floor of 15% instead, labeled as fallback plays. When the credit is too thin, the rule is to narrow the spread or skip the trade, rather than move the short strike closer to the price, which would buy credit by giving up the cushion the trade depends on.
Our settled record
Of the 120 bull put and bear call spreads on our track record that have settled, 102 won and 18 lost, 85% in all: 78 wins and 15 losses on bull put spreads, 24 and 3 on bear call spreads. Each is graded mechanically against the stock's close at expiration, losses included.
Whether a win rate like that pays depends on what the losses cost, which is why the credit floor above exists. Our study of the structure that cost us most looks at the losing side of the ledger.
Frequently asked
What is a credit spread?
A credit spread sells one option and buys another of the same type further out of the money, for a net premium received up front. The bought option caps the loss. A bull put spread profits if the stock stays above the short put; a bear call spread profits if it stays below the short call.
Why trade credit spreads around earnings?
Option premiums are inflated before a report because the outcome is unknown, and they collapse once results are out. Selling a spread collects that inflated premium, and a short strike placed outside the implied move gives the stock room to move before the trade loses.
What win rate does a credit spread need?
If every loss is a full loss, the break-even win rate is 1 minus the credit divided by the spread's width. A credit of 20% of the width needs an 80% win rate; 10% needs 90%.