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Hey everyone, this is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to answer the question, “Why do long option strategies fail to profit after a stock’s earnings are released?” A common misconception, totally common misconception in the marketplace is that when a stock announces earnings, you get this huge move in the underlying stock and therefore, you can profit potentially from that huge move. But the problem is that as you're approaching that unexpected event, that earnings event, the market prices in the expectation of a huge move. It naturally happens. And so, what we see is we see actually heading into those events, sometimes a week or two weeks or a month out, implied volatility will start to rise heading into that earnings event because we don't know if the stock is going to announce great earnings, if they’re going to announce bad earnings, if their revenue fell or grew, whatever the case is, right? And so, traders are expecting a big move to begin with. They just don’t know which direction the big move is going to happen. And so, implied volatility increases and all option prices get bid up on both sides. The misconception here is that people can go into these events and buy options right before earnings or shortly before earnings, maybe a week or two out and profit from this huge move in the underlying stock. What people often do is they actually trade what are called long straddles. They'll trade a long straddle or a long strangle and say, “Well, I don't care which way it moves. I’m going to profit no matter where the stock goes as long as it has a big move.” I get the concept and it's very easy to explain. The problem is that in reality, it’s just does not work this way. We’ve done a lot of back-testing on this and we actually released a podcast, Show 113 on our main podcast or weekly podcast which you can check out as well. And the highlights from that are we basically tested three of the biggest names in this. We did Apple, Facebook and Chipotle. And what we found in that test is that all of those had expected moves that were much, much higher than the actual move of a stock, meaning the market expected for example, Apple to move say 10% up or down, but it only moved 5% up or down. And so, what happened was that these long straddles and long strangle ended up winning a very, very small percentage of the time. In fact, in Chipotle’s case, if you did a long straddle where you are just hoping for a huge move in the underlying stock, you ended up winning 35% of the time. You drastically underperformed something else like a short straddle or a short strangle. The key here is obviously, we know that these expected moves are going to happen. We know that we’re going to get big moves in the stock, but it's already priced in. And over the long haul, not over every single period, over the long haul, we do see that selling options around earnings events end up being the more profitable strategy versus long option strategies. As always, hopefully this helps out. Again, you can check out Show 113 on the main podcast by heading over to optionalpha.com/show113. Until next time, happy trading!