Straddles on individual stocks generally earn negative and significant returns. However, average at-the-money straddles from 3 days before an earnings announcement to the announcement date yield a highly significant 3.34% return. The positive returns on straddles indicate that investors underestimate the magnitude of uncertainty around earnings announcements. We find that positive straddle returns are more pronounced for smaller firms and firms with higher volatility, higher kurtosis, more volatile past earnings surprises, and less trading volume/higher transaction costs. This suggests that when firm signals are noisy, and/or when it is costlier to trade, investors underestimate the uncertainty associated with earnings announcements.