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Calculations When an Unexpected Earnings Report is about to be Released

Never write a covered call or sell a cash-secured put if there is an earnings announcement due prior to contract expiration. This is such an important rule in the BCI methodology. However, we all know that life is not perfect and sometimes we are thrown the proverbial “curve ball” Earnings reports come out every quarter or every three months. If a report is released on June 1st, we would expect the next one to be made public on or around September 1st. There are times when the upcoming report is announced to come out much sooner than anticipated. Frequently, it is related to the previous report announcement coming out much later than expected and the upcoming announcement will get the reporting back on a 3-month tract. That said, what do we do if we already entered a position and then realize that a report is due out prior to expiration because of an earlier-then-expected release date? In November 2016, this happened to one of our members, Mike, with stock (THO), a stock on our Premium Stock report.


Why do we avoid earnings reports?

Because of the unknown nature of the report and how the “market” will react to it, there is an extreme amount of implied volatility in the stock which can move it significantly up or down in price after the announcement. By selling a covered call, we are capping the upside (resulting from a positive surprise) and leaving the downside unprotected (outside of the option premium). This is taking a conservative options strategy and transforming it into a risky one. This may be okay for some but an event to avoid for most. There are times we really like a stock and perhaps it has also had a history of positive surprises. In these scenarios, it is better to hold the stock through the report to take advantage of share appreciation following a positive report and then sell the option…our goal is to benefit from both a positive report and from option premium. In most cases, we simply will not own the stock until the report passes.


Mike’s trade

  • Buy 200 x THO at $86.62
  • Sell 1 x December $85.00 call for $4.20
  • Sell 1 x December $90.00 call for $2.16
  • Became aware of a 2-month (from last report) earnings release on November 27th, the day prior to the after-market close report
  • Stock price currently is $90.67
  • Cost to close the 2 positions: $750.00 + $420.00 = $1170.00


Technical chart prior to the report

THO Chart Prior to Earnings Release

THO Chart Prior to Earnings Release

In February 2015, a negative surprise resulted in a share price decline of $5.00 (see brown fields). This chart explains the inherent risk related to earnings releases and also portrays a bullish overall chart and one of the reasons the stock earned its way onto our Premium Stock Report.


Calculations if the position is closed prior to the report

  • Share profit if sold at $90.67 = 200 x $4.05 = $810.00
  • Option credit = $636.00
  • Total credit = $1446.00
  • Cost-to-close 2 options = $1170.00
  • Net credit, if closing = $276.00 (less commissions)
  • 1-week return = $276.00/$17,324.00 (cost of 200 shares) = +1.6%

We can actually generate an impressive 1-week return and avoid the risk of a negative surprise. We can also just close the short calls and retain the 200 shares with a goal to benefit from a positive surprise. Here we are still incurring the earnings release risk but not capping the upside.


So what happened?

earnings reports and covered call writing

THO Positive earnings Surprise

A positive earnings surprise resulted in an increase in share value of $10.00 the next trading day after the report was made public. Those who held the stock benefitted the entire amount because the call was removed and the upside was not capped. Those who closed the entire position and did not own the shares, did not profit from the share advance but did remove the risk of a potential negative surprise…we look forward not back.



Earnings reports should be avoided. In cases when reports are scheduled to be made public in an unexpected shorter time frame, it will be to our advantage to either close the entire position or at least the short call leg of the trade. Which approach we take will be determined by our personal risk tolerance and the confidence we have in a positive surprise based on historical data.


Next live event

Long Island Stock Trader’s Meetup

Tuesday May 9th, 2017

7 PM – 9:30 PM

“Using Stock Options to Buy Stocks at a Discount and to Bring Portfolio Returns to Higher Levels”

Admission is FREE

Register and information


Market tone   

Global moved up after centrist Emmanuel Macron advanced to final round of the French presidential elections, edging out populist Marine Le Pen for the top spot. Macron holds a 20-point lead in the polls ahead of 7 May’s vote. Oil prices fell to $49.00 from $50 a barrel last week as fresh Libyan crude supplies hit the market. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), dropped to 10.82 from 14.7 a week ago. This week’s reports and international news of importance:

  • Restrained by weak consumer demand, 2017 got off to unimpressive start in the United States, with the economy growing just 0.7%, the weakest quarter of growth in three years
  • Forecasts for Q2 growth are running in the 3% to 4% range
  • The European Central Bank surprised markets by maintaining a more dovish tone than many had expected. Bank president Mario Draghi allowed that downside economic risks had diminished, but he offered no hints as to whether or when the ECB will begin to dial back its asset purchases
  • The Bank of Japan indicated it would maintain its present ultra-loose monetary policy amid signs of slightly stronger domestic growth but still-very-low inflation
  • The Trump administration turned its attention to tax reform this week, releasing an outline of a proposal it will send to Congress. Under the plan, seven tax brackets would be reduced to three, the corporate tax would be slashed to 15% from 35% and the deductibility of state and local taxes would be ended. Notably, the proposal does not include a border adjustment tax, a centerpiece of the House GOP tax plan
  • President Donald imposed levies of up to 24% on softwood lumber imports from Canada. For the past 35 years, there has been a trade dispute between the US and Canada on the commodity, which is mostly used in home building. Analysts see the imposition of tariffs as setting the tone ahead of talks on reforming the North American Free Trade Agreement
  • Trump said this week that he will not withdraw from NAFTA “at this time” after media outlets reported that his administration had drafted a preliminary executive order pulling the US out of the agreement
  • With 27 EU leaders gathering on Saturday, April 29th for a summit on Brexit, German chancellor Angela Merkel took a particularly hard line on the matter in a speech before the Bundestag. Merkel said that officials in London are harboring “illusions” if they expect preferential treatment during the break-up negotiations.

According to Lipper, as of April 26th, with 242 of the S&P 500 companies reporting, aggregate earnings for Q1 2017 are expected to rise 12.4% from Q1 2016. Excluding the energy sector, earnings are expected to grow 8.7%. Revenues are expected to grow 7.2% versus a year ago, 5.2% when excluding the energy sector



MONDAY, May 1st

  • Personal income March
  • Consumer spending March
  • Core inflation March
  • Markit manufacturing PMI (final) April
  • ISM manufacturing index April
  • Construction spending March


  • Motor vehicle sales April


  • ADP employment April
  •  ISM nonmanufacturing April


  • Weekly jobless claims
  • Trade deficit March
  •  Factory orders March


  • Nonfarm payrolls April
  • Unemployment rate April
  • Consumer credit March

For the week, the S&P 500 moved up by 1.51% for a year-to-date return of 6.49%. 


IBD: Market in confirmed uptrend

GMI: 6/6- Buy signal since market close of April 21, 2017

BCI: I am currently selling an equal number of in-the-money and out-of-the-money strikes, a neutral posture… too much geopolitical and domestic uncertainty for me to join the bullish party at this time


The 6-month charts point to a moderately bullish outlook. In the past six months, the S&P 500 was up 12% while the VIX (10.82) declined by 34%.


Wishing you the best in investing,

Alan ([email protected]) and the BCI team


About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

39 Responses to “Calculations When an Unexpected Earnings Report is about to be Released”

  1. Barry B April 29, 2017 9:31 pm #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 04/28/17.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    Since we are in Earnings Season, be sure to read Alan’s article,
    “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:


    Barry and The BCI Team

  2. Jay April 29, 2017 11:14 pm #

    Well, a new blog and month: let the friendly comments begin 🙂

    I used a calendar month expiry for my covered calls on XL series ETF’s expiring yesterday. I bought them all back for intrinsic value less than what I sold them for. I scratched out a few bucks on the options side and kept the appreciated funds.

    Why calendar monthly? I knew about the govt, funding, the Fed meeting and likely France run off next Sunday plus the jobs number this Friday. I wanted to sit out next week from a covered call perspective. – Jay

    • Roni April 30, 2017 5:36 pm #

      Hi Jay,

      About France election.
      My wife is French, so we watch TV5, the French channel, every day, especially the news.
      Far right Le Pen has a very small chance against centrist Macron, as half the French voters are voting against her.Unless the debate scheduled for next week changes the minds of millions.

      So, I do not see any major dangers for the stock market for this month. (famous last words ha, ha…)

      • Jay April 30, 2017 8:01 pm #

        Hey Roni,

        Thanks for your insight and thanks to your wife for her thoughtful perspective. I do not see any earthquakes coming out of France either.

        When we sell options we hope for boring times 🙂 If we fear exciting times it is best not to sell them in my view! – Jay

  3. Barry B April 30, 2017 5:56 pm #

    Premium Members,

    There was a typo in the “Market Overview” section (front page). The GMI should be a “Buy” not “Sell”. Also, I’m expecting to get updated data very early in the week to update the report. Our provider didn’t send it over the weekend. I don’t expect the new data to impact any of your trading decisions. Expect an updated report as well.



  4. Roni May 1, 2017 2:29 pm #


    I bought NFLX on 04/20 @ 141.60, and sold NFLX 05/19/2017 145.00 C for 2.46.
    Now NFLX is trading at 157.05, and the call is at 12.75.

    Question :
    Would you unwind and make 516.00 ? Or wait 3 weeks and probably make 586.00 ?


    • Alan Ellman May 1, 2017 3:04 pm #


      This will make a great “Ask Alan” video!

      When share price moves up significantly, the time value cost-to-close approaches “0” In these situations we look to see if we can generate a least 1% additional income (over and above the cost-to-close) in this same contract month with the cash generated if we close both legs of the trade.

      In this particular trade, the maximum profit has been realized, 4.1% in 10 days…nice going. See the screenshot below.

      The time value cost-to-close is $12.75 – ($157.05 – $145) = $0.70 = 0.48% Can we generate more than 1/2 of 1% in the 3 weeks remaining in the contract? I would look for a return of 1.5% or more to trigger the mid-contract unwind exit strategy.



      • Roni May 2, 2017 1:57 pm #

        Hi Alan,

        I got a fill this morning for the NFLX trade, and used the cash to
        place a new trade , bought 1000 GLW shares @29.02 and sold simultaneously 10 GLW 05/19/2017 29.00 C for 0.41 = 1.4%.

        • Alan Ellman May 2, 2017 6:25 pm #


          If GLW remains above $29.00, you will have generated > 5% 1-month return. Let us know how the trade works out.


          • Roni May 3, 2017 2:18 pm

            OK Alan, will do.

    • Jay May 1, 2017 3:55 pm #

      Hey Roni,

      Lightning please strike me down for saying this but you should never sell calls against growth stocks like NFLX.

      Covered calls are best on blue chips and ETF’s in my opinion.

      • Roni May 1, 2017 5:31 pm #

        Great point Jay,

        I have traded NFLX for several years now, and when I started, it was 34.00. So I could have made 5 times my initial investment if I had just held it since. So this confirms your statement.

        On the other hand, when I look at the last year, I have traded NFLX 8 times selling simultaneous monthly covered calls each time, averaging 3% per trade, which is a fabulous score in my view.
        I wish I had more such soldiers to bet my dollars on.

        Usually I diversify by trading 10 stocks and writing monthly options, and feel good if I get 6 or 7 right, which is not always the case, as I still make too many mistakes, plus some “frustrating events” as Alan calls them.

        • Jay May 1, 2017 6:15 pm #

          Thanks Roni,

          I apologize for over stating my point and would like to correct myself. I said “never” on growth stocks but that is a big word :).

          Where I have found success with stocks like NFLX, NVDA, AAPL, the list goes on is only covering half of my position. So if I can afford 200 shares I only sell one contract and let the rest run free.

          That way I get the best of two fine strategies. – Jay

          • Roni May 2, 2017 2:03 pm

            No need to apologize Jay, I value and cherish each of your comments. Please continue posting them with full sincerity.


    • Roni May 1, 2017 5:03 pm #

      Thank you Alan,

      I do see several strong candidates in Barry’s current weekly stock screen and watch list..

      I did enter the unwind trade for NFLX, but did not get a fill, because my Bid/Ask negotiation made me miss the moment.
      No problem, will see again tomorrow.


      • Justin P. May 1, 2017 11:53 pm #

        Care to share any of those ‘strong candidates’ Roni? 🙂 I’m not seeing much of anything, apart from maybe VEEV and STLD which however are on the pink list.

        • Roni May 2, 2017 2:30 pm #


          I can see nice monthly covered call trades for:

          JNPR, ROO = 1% ATM, OI = 113(good).
          LOGI, ROO = 1,2% ATM, OI = 61 (low).
          TRU, ROO = 1% ATM, OI = 30 (very low).
          GRUB, ROO = 2.5%, potential 3% NTM, OI = 245 (very good)

          I did exit NFLX this morning and used the cash to place a trade in another bold ticker from the warch list : GLW, ROO = 1,4% ATM, OI = 11,600 (super).

          Remember that there are only 17 days left in this option cycle.


          • Justin P. May 2, 2017 10:39 pm


            Thanks for the detailed response and good luck with those! Are you looking at many different stocks and strikes before you make your trades?


          • Roni May 3, 2017 2:48 pm


            I concentrate on Alan’s covered call methodology.

            The first week of options cycle, I check all the “bold” tickers on Barry’s list, and select the tickers which have aprox. 2% ATM or NTM monthlly option premium, and more then 100 OI at the strike I choose.

            To diversify, I also check market darlings with same type of opportunities.

            I have a permanent watch list on Yahoo Finance, with 200/300 tickers divided by industry which helps to select some potential soldiers.

            In my opinion, Yahoo is the best tool for rapid and complete info.

            And of course, Earnings Whispers, to avoid reports prior to expiration.

            It sounds like a lot of hard work, and it is, But to me it is great fun.

            Cheers – Roni

          • Justin P. May 3, 2017 8:30 pm


            I’m using to view option chains as you can switch quickly between options using a watch list (max. 25) which is visible on the page. (I’ve got several lists of groups of 25 stocks saved on a spreadsheet.) With Yahoo don’t you have to load your list and choose the next stock to switch between them, or is there a quicker way?


          • Jay May 3, 2017 11:19 pm


            One thing to keep yourselves honest and make sure your portfolio turnover is worth the bother is set up a paper trade account with 60% SPY and 40% QQQ over writing it at one half of one percent each month.

            Compare results. You may find simplicity wins. – Jay

          • Jay May 5, 2017 10:35 am

            It is conservative, you could just as easily use 1%. But one half of one percent is still 6% a year which is a great additional yield on something like SPY or QQQ if the idea is to over write with low portfolio turnover, minimal management time and very low transaction cost.

            Those would be the goals when running a side portfolio in a paper account to see how it does versus a more actively managed account.

            I recommend everyone do that. Particularly when starting out. Or at least compare your monthly, quarterly and annual results against a blend of SPY and QQQ.

            It is empowering to beat the indexes but eye opening when you don’t particularly if making a lot of trades each month in the pursuit. – Jay

          • Roni May 5, 2017 11:10 am


            I know you are an expert on spreadsheets, so it comes easy to you.
            I wish I was good at it too, but alas, I neglected it when it was first available, and never caught up.

            I am planning to take a course in Excell in the near future, to improve my skills and help me with my trading.

            This thread is comming to an end, so I will send you some screen shots from my Yahoo portfolio next week.


        • Roni May 4, 2017 11:38 am #


          my Yahoo portfolio was built by adding tickes gradually.
          I named them by industry to keep them apart and when I click on one, for example “health”, I am shown a list where I can add/remove tickers, and some basic info on each one, such as price, volume, market cap, percentage change, etc.

          Click on a ticker, and you get a new page with specific details, a simple chart, and specific news.
          Click on “options” tab, and you get all the options chains available for that ticker.

          • Justin P. May 5, 2017 8:01 am

            Jay – 1/2% per month seems awfully conservative?

            Roni – I see you’re using Yahoo for more than just the option chains. Currently I’m using Seeking Alpha for stock news (and Google) and MarketWatch for charts. Re the chains I copy and paste up to a dozen or so strikes at once into a custom built spreadsheet calulator so I can quickly see the most promising looking ones – using mainly BCI stocks at the moment.


          • Jay May 5, 2017 10:37 am

            OOPS, my reply to Justin ended up out of sequence in the thread :)! Sorry, – Jay

          • Roni May 5, 2017 11:11 am


            I know you are an expert on spreadsheets, so it comes easy to you.
            I wish I was good at it too, but alas, I neglected it when it was first available, and never caught up.

            I am planning to take a course in Excell in the near future, to improve my skills and help me with my trading.

            This thread is comming to an end, so I will send you some screen shots from my Yahoo portfolio next week.


  5. Barry B May 1, 2017 10:44 pm #

    Premium Members,

    The Weekly Report for 04/28/17 has been revised and uploaded to the Premium Member website. Look for the report dated 04/28/17-RevA. The revision was in the “Risk/Reward” ratings. The updated data was received after the market close today. There were two changes that would impact your trading decisions:

    KRNT went from Pass to Fail
    SBGI went from Pass to Fail


    Barry and The Blue Collar Investor Team

  6. George May 2, 2017 6:16 pm #


    I guess this is another shift in my thinking.

    Up till now, I haven’t even considered selections in pink. The only ones I consider are the selections in the white area, in bold type. In my mind, I used the pink as an indication to get out soon if I held any covered positions.

    Is there value in the pink section as well, perhaps for more ITM than OTM, since the technicals are weakening?

    • Alan Ellman May 3, 2017 7:35 am #


      The stocks in the “pink” sections of our premium stock reports, are securities that have passed our rigorous screens recently but got “bumped” off the list in the current week. We give such stocks 3 weeks to recover before being eliminated from this pink section and off the list completely. Overwhelmingly, the issue is related to technical analysis.

      Members who choose from this section are using the list to locate strong stocks that may be at the low end of a trading range. I use white cells only but if I did use this section, I would opt for ITM strikes as a layer of protection.


  7. Jay May 2, 2017 7:57 pm #

    I hope I do not get banished for posting this but I have bought more options than I sold for May expiry :).

    As investors we want to hold long term positions in the indexes and blue chips and over write as far OTM each month as decent return permits to boost our yield.

    For the trading portion of our accounts we never want to be one trick ponies. It is helpful to be flexible. The value proposition in options today, in my opinion, is on the buy side with VIX this low.

    Our same Premium list works. Find a stock you like, scroll down the call options chain, find a place where delta is greater than .5 and open interest is high and buy a few of those contracts on down days for June expiry.

    Please spend a small fraction of what you would if you bought 100 shares. You are leveraged with an options buy and could get your clock cleaned. 🙂 Don’t get too heady when the stock goes up. Take your profits early or at least use trailing stops.

    Always buy your calls ITM so you have some intrinsic value to off set time decay. Many people buy options OTM thinking they are a bargain only to see them waste away fast since they have no under lying value. Remember that is why we sell OTM options most of the time to take advantage of those poor saps!

    Anyway, it’s a thought, don’t spend much and have fun! – Jay

    • Alan Ellman May 3, 2017 8:00 am #

      Covered call writing and selling cash-secured puts places us on the “sell” side of option-trading. Buying call options is a strategy most appropriate for sophisticated, experienced investors (like Jay) who have a higher risk tolerance and a goal to achieve even higher returns. From feedback I receive from members, we have a small percentage who, like Jay, put aside a small percentage of their portfolios for riskier strategies. The tradeoff is the potential for higher returns but a greater chance of capital depreciation. On the buy side we are anticipating Delta (share appreciation) compensating for the impact of Theta (time value erosion) and then adding profit.

      Call options cost less than stock…a positive. Call options start depreciating in time value (all other factors being equal) the second they are purchased…a negative.

      For most of us on this site, the sell side is most appropriate.

      I never say never to any strategy but I do encourage all investors to master the risks and see if they align with our personal risk tolerance…one size does not fit all.


      • Jay May 3, 2017 10:30 am #


        Perfectly expressed as always!

        I hope it is clear to even the most casual reader I was only suggesting buying options with a fraction of any account.

        Serious money should always be invested in equity where you own something and sell options as if renting your property with a buy clause included :).

        My suggestion was this is a good time to take a few higher risk speculative positions if one is of the mind to do so because premiums are so low in both directions. I draw a distinction between investing and trading. In fact, I don’t even view selling covered calls and cash secured puts as trading. I view them as an integral part of core investing.

        Trading, to me, is like going to the casino. It’s fun, it’s a challenge but don’t expect to make much, leave your ATM card at home and if you walk out with empty pockets, well, you kind of asked for that :). – Jay

  8. Jay May 3, 2017 2:52 pm #

    Since I feel terrible about maybe coming across as a river boat gambler encouraging people to speculate when that was the farthest thing from my mind knowing this site is the home of conservative investors I want to share a real time trade from today to maybe better illustrate my intent.

    AAPL is past earnings and a lot of people like that stock including me. Since it was down today I bought 1 contract of the June 140 call and paid $7.40 a share: $740 total spend plus the small commission at Options House. AAPL is at $147.06 as I write this and the option is up a few cents to $7.65

    The point is I bought an ITM option with little time value to decay for June and a high delta on a stock I like risking only a pittance. If you are going to gamble in the options market please do it that way :). – Jay

  9. Alan Ellman May 3, 2017 5:50 pm #

    Premium members,

    The latest ETF report has been uploaded to your member site (dated 5-3-17).

    Last week’s Blue Hour webinar on mutual funds, indexing and option Q&A has been uploaded on the member site.

    All members,

    BCI is heading to NY:

    Next live event

    Long Island Stock Trader’s Meetup
    Tuesday May 9th, 2017
    7 PM – 9:30 PM

    “Using Stock Options to Buy Stocks at a Discount and to Bring Portfolio Returns to Higher Levels”

    Admission is FREE

    Register and information:

    Much success to all,
    Alan and the BCI team

  10. Bob May 4, 2017 11:59 am #


    I believe that I detected from your blog that you may be in Atlanta in the future.

    Do you have any details for us here in Atlanta?
    When will your third volume of the Encyclopedia be available for purchase?

    Alan, I do sincerely appreciate all of your terrific work for us.


    • Alan Ellman May 4, 2017 2:45 pm #


      I currently have no events planned in Atlanta although I have spoken there in the past. Beautiful city! If invited, I would certainly give the invitation serious consideration. Check the “view all events” link on the top right side of the blog page to see current invitations I have accepted.

      I am now about 350 pages into Volume 3 of “The Complete Encyclopedia”. Since each of the first 2 editions took 4 years to write, I would expect Volume 3 ready for publication at the end of 2018 to the beginning of 2019.

      I also expect a new book to be published prior to Volume 3 on covered call writing alternative strategies.

      Thanks for your interest and generous remarks.


  11. Brian May 4, 2017 12:45 pm #

    Hi Allen,

    Thanks for this video series. I have watched all of the Cash Secured Puts videos. While I have been trading options for awhile, I like your methodology and am now considering joining your membership service

    I have one question about how you roll your trades.
    In a situation where the stock goes down, in the video on exit strategies, you roll the put out a month to an the same strike, which is now ITM, rather than selling at a strike below the current stock price (as you had done in the initial entry). Could you explain why?


    • Alan Ellman May 4, 2017 3:11 pm #


      Video 7 of the Beginner’s Corner Put series provides an overview of exit strategies with two examples. The rolling example, highlights when and how to roll the option when expiring in-the-money and gives an example of the same $50 strike. As mentioned at the end of the video, strike price selection is one of the 3 required skills and is separate from stock selection and position management. Strike selection is such an important topic and is detailed with multiple examples in all my books and DVD programs.

      Rolling to an OTM strike or a deeper ITM strike will depend on a series of factors and the $50 strike in this video was simply an example of one of the choices.


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