Why AI stocks need a different approach
AI leaders often trade with 40–70% implied volatility, versus roughly 15–25% for the S&P 500. High IV makes long calls costly — the stock can rise and the option can still lose value if volatility falls (IV crush), especially after earnings.
Big, fast moves in both directions also make position size and defined risk more important than picking the exact top or bottom.
1. Bull call spread — bullish with a capped cost
Buy a call and sell a higher-strike call in the same expiry. The sold call pays for part of the bought one, which offsets high IV. Max loss is the debit paid; max gain is the width between strikes minus that debit.
2. Covered call — income on shares you own
Own 100 shares and sell an out-of-the-money call. High IV means bigger premiums. The tradeoff: if the stock rips past the strike, your upside is capped there.
3. Cash-secured put — get paid to wait for a lower entry
Sell a put at a price you would be happy to buy, with cash set aside. If the stock stays above the strike you keep the premium; if it falls below, you buy shares at the strike minus the premium.
4. Collar — protect gains after a big run
Own shares, buy a put below and sell a call above. The call helps pay for the put, so protection can cost little or nothing — in exchange for capping upside.
5. Earnings: defined-risk, not naked
Options price an expected move into each report (see the Earnings desk). Buying options right before earnings means paying for that move; IV usually collapses afterward. Spreads and smaller sizes help limit damage if the move disappoints.
Checklist before any AI-stock options trade
- Check IV rank — high favors selling premium, low favors buying.
- Know the next earnings date and the priced-in move.
- Look at gamma walls for likely stall points.
- Decide max loss in dollars before entering.
- Check unusual options flow — but a big order can be a hedge, not a bet.