Echoing Ursa and MTE, I paper traded this strategy with many securities for about 6 months. It's a losing strategy. If you had the capital, selling the straddles may be profitable, but expect a few wipeouts.
Basically, the reason, as Ursa has pointed out, is volatility crush/drop after the announcement. When you buy a straddle coming into an event the IV is inflated so you're buying expensive options. In other words, when you buy a straddle what you're really doing is betting that the subsequent move (i.e. realized volatility) will be bigger than the expected one (i.e. implied volatility). Sure some will make dramatic moves, but some won't move at all while others will move, but not enough to offset the cost of the straddle. Thus, overall, after taking into account bid/ask spread and commissions you'd be lucky to breakeven.
Well, further out options are not cheaper, they may trade at lower IV, but it doesn't mean that they're cheaper than the front month. Besides, further out options have lower Gammas so they're slower to respond to the underlying's move.
I am not sure I know then how do you calculate the monthly cost of the options with the expiration time of more than 1 month.
is there a third, yet? coz i'll 4th this i also paper-traded straddles earnings and it lost moneyl. very recent example would have been goog. if you had bought a straddle prior to the latest earnings, you'd have lost money - big money. i think where you can make money is where you watch the stock after earnings and guidance announcement. sometimes, the stock will take time (a few days to a few weeks) before it fully reflects the full-importance of the recent earnings. within the 1-2 days after earnings, there can be an opportunity for picking the right direction. you can buy some long term OTM puts or calls (so theta is not too costly), IV has collapsed and you hope that it doesn't go down anymore (or at least not by much) and you hold it for 2-3 weeks with a reasonable target on the stockprice where you will get out. within 2-3 weeks, you'll know whether you were right on your assessment of the direction and you can just get out or try to hit your target. and remember, earnings is two-part - earnings (with all of the mumbo jumbo, revenues, net-income, expenses, and growth comparison, cashflow) and GUIDANCE. my theory on this "time-lag" is because the fundies take time to get-out or reduce their holdings, or to get-in or increase their holdings because of the size of their positions. just my opinion. Good trading
Based on your claim that further out options are not cheaper than front month option in order for me to compare I need to know how do you calculate the monthly cost of the further out options.