$AFRM CSPs: +$4k Earnings Play Breakdown

One of my favorite recurring setups is the earnings IV crush play on stocks I know well. Here’s a breakdown of a recent $4,000 trade on AFRM (Affirm Holdings).

The Affirm Business Case

Affirm is the leading BNPL (Buy Now, Pay Later) provider in the US — the payment partner for Amazon, Shopify, and Walmart. The key metric I track is GMV (Gross Merchandise Value): total dollars transacted through Affirm’s platform. Strong GMV growth = strong revenue growth.

Why I Set Up an Earnings Play

AFRM had beaten earnings estimates 3 consecutive quarters. The BNPL market was growing — consumer credit appetite was strong. IV before earnings was 80%+ (extremely elevated = huge premiums). I had a fundamental view that the business was trending in the right direction. The chart showed strong support at the $40 area.

The Trade

I sold AFRM $40 CSPs expiring the week of earnings. With IV at 80%+, each contract generated $3.50-$4.00 in premium. I sold 10 contracts for a total credit of ~$3,800. My thesis: even if AFRM missed slightly, the stock was unlikely to fall below $40. The IV crush after earnings would work in my favor regardless.

What Happened

AFRM beat expectations. The stock jumped. IV collapsed after earnings. The options I sold went from $3.80 to $0.40 within 24 hours. I closed for a $3,400 profit — about 89% of maximum gain in less than 24 hours.

The Risk I Was Taking

If AFRM had missed badly and dropped to $30, I would have been assigned at $40 on a stock trading at $30. That’s a $10/share unrealized loss on 1,000 shares = $10,000 paper loss. My cushion was: 1) the $3.80 premium reducing break-even to $36.20, and 2) my fundamental conviction in the business. I was prepared to wheel it if assigned.

Earnings Play Rules I Follow for my Investment Trades

1. Only play earnings on companies I understand fundamentally 2. Check analyst estimates vs. whisper numbers — the market’s actual expectations vs. reported expectations 3. Size conservatively — earnings are binary, things can go very wrong 4. Have a plan if assigned: will I be okay owning the stock at the strike? 5. Never do this on speculative/unprofitable companies with no support levels