Are earnings options overpriced?
Before a small cap reports, do the options charge more than the move that actually happens?
The answer
Usually, yes. Small-cap options priced in a 10.5% move on average; the stock moved 9.0%, and beat the options’ expectation only 34% of the time.
7,067 cases tested.
The numbers
| Company size | Options expected | Actual move | Move beat it | Buyer’s result |
|---|---|---|---|---|
| Micro caps (under $300M)748 reports | 14.5% | 11.7% | 33% | −9.7% |
| Small caps ($300M–$2B)7,067 reports | 10.5% | 9.0% | 34% | −9.0% |
Does a company’s own history predict the next one? (small caps)
| History before the report | Move beat it | Buyer’s result |
|---|---|---|
| Past moves beat what options priced by 20%+802 reports | 42% | +2.7% |
| Beat it by up to 20%704 reports | 41% | −1.3% |
| Fell short by up to 20%797 reports | 38% | −5.6% |
| Fell short by 20%+1,559 reports | 30% | −14.3% |
What it means for a trader
Buying options before a small cap reports loses money on average. A company’s own track record does predict how its next report compares, but on paper only: the bid-ask spreads on these options average far more than the edge, so neither buying nor selling them pays after costs.
How it was tested
Each report’s earnings-only implied move, the day before, from ORATS, compared with the actual earnings-day move. “Buyer’s result” is the move minus the implied move, as a share of the full straddle price, before bid-ask spreads. Small and micro caps, 2023 to 2026.
History, not predictions. Not investment advice.