Every quarter, the same thing happens.
A retail trader pulls up Nvidia the afternoon of earnings. He loads up on weekly calls. Maybe a lottery ticket put option or two for balance. He's convinced he found an edge because the stock "always moves" after earnings.
Then the bell rings.
The stock moves exactly like he predicted: Up three percent.
His calls? Down 40 percent.
If this has ever happened to you, you're not stupid.
You're just trading a pattern that stopped working twenty years ago and nobody sent you the memo.
The Academic Obituary Nobody Read
Here's a name you've probably never heard: Ray Ball.
In 1968, he and Philip Brown published a paper that turned Wall Street upside down. They documented something called the Post-Earnings Announcement Drift (the tendency for stocks that beat earnings to keep drifting higher for weeks afterward, and stocks that miss to keep bleeding lower).
It became the first market anomaly ever formally recognized.
Fifty years of research. Over 200 published papers.
Bernard and Thomas followed up in 1989 and put a number on it: a long position in the best earnings surprises combined with a short position in the worst yielded an annualized abnormal return of about 25 percent before transaction costs.
Twenty-five percent a year. Just for holding the winners and shorting the losers.
For four decades, that was the holy grail of retail earnings trading. Buy the beats. Sell the misses. Ride the drift.
Here's the part nobody tells you.
It's dead.
What Killed It: Decimals and Bots
In 2021, a University of Toronto researcher named Charles Martineau published a paper with the kind of title academics don't usually write. He called it Rest in Peace Post-Earnings Announcement Drift.
The argument was brutal and simple. In modern markets, stock prices fully reflect earnings surprises on the announcement date itself. For large stocks, the drift has been non-existent since 2006.
Gone. Over. Dead.
What killed it? Two things. Stocks started trading in decimals instead of fractions, which let computers nudge prices by a penny instead of a clunky eighth. Then in 2005, new regulation turbocharged high-frequency trading (computers that buy and sell in millionths of a second).
Translation: the machines showed up. And the machines don't let twenty-dollar bills sit on the sidewalk.
UCLA's Avanidhar Subrahmanyam ran the numbers again in a 2025 paper. Strip out microcap stocks (the tiny, barely-traded names that make up about three percent of market value), and the drift effectively vanishes.
The whole anomaly was being kept alive by stocks nobody you know actually trades.
Let that sink in.
The edge retail traders think they have by playing earnings on big names like Apple, Nvidia, Tesla, and Meta hasn't existed in almost twenty years.
Why Your Calls Keep Losing Even When You're Right
So the drift is gone. That's bad enough.
Here's what's worse.
Implied volatility (the uncertainty premium baked into option prices) typically peaks the day before earnings, then collapses the first trading session after the announcement. Sometimes losing 30, 40 percent or more in a single session.
This is called IV crush.
And it's the number one reason retail options traders lose money during earnings season.
You pick the right stock. You pick the right direction. The stock moves your way. You wake up and your option is down 20 percent.
Why?
Because you weren't paying for the direction. You were paying for the uncertainty. The second earnings hit the tape, the uncertainty was gone. The hype premium evaporated.
Think about it like buying fire insurance at 4:59 PM on the day your house is burning down. You'll pay anything. Five minutes later the fire's out, and that policy is worthless.
That's every earnings-day options trade ever placed by a retail trader who didn't know what he was buying.
The Real Edge Comes After the Dust Settles
Here's where it gets interesting:
The research doesn't say there's no money to be made around earnings. It says the announcement day is fully priced in. That's a very different claim.
While the machines price the surprise in milliseconds, something else is happening they can't solve for: the hype clears out, premium drops, the trend establishes itself, and the crowd moves on to the next ticker.
The stock gets left to do what the fundamentals actually dictate.
This is the window Mark Sebastian has been trading in Special Situations.
He doesn't gamble on announcement night. He doesn't try to out-guess a billion-dollar quant shop on whether the print will beat by a penny.
He lets the chaos burn itself out.
He waits for the volume to collapse.
He waits for the options to get cheap again.
Then he positions for the move the tape already signaled.
Here's what three of them looked like on the tape:
- Corning (GLW): Buy 1/29/26. 91% in five days.
- Nvidia (NVDA): Entered 9/2/25 76% in eight days.
- Lithium Americas (LAC): 94% in just over 40 days.
There are dozens more.
No earnings-day lottery tickets. No IV crush. No guessing whether the print beats by a penny.
Just patient positioning after the hype cleared out.
The Takeaway
The market has gotten more efficient at pricing earnings announcements. Forty years of academics studying this anomaly, and the consensus is that the surprise is fully priced before you've finished reading the headline.
But efficiency on announcement day doesn't mean efficiency forever. It means the machines solved one problem and moved on.
The post-earnings period, after the IV crush, after the volume collapse, after the retail crowd has already lost its money, is where a patient trader still has room to work.
And with earnings season upon us, post-earning trades will be plentiful.
I urge you to follow Mark and Hannah Tuesday after the close.
Add LIVE TESLA EARNINGS to your calendar here.
Take care,
Charles Delvalle
Editorial Director, Option Pit