AI Transactions Show Signs of Cracks: Here’s How to Profit from Them
CNBC
1h ago
Ai Focus
CNBC Pro contributor Julia Spina believes that although the "Big Seven of U.S. Stocks" are still at record highs, cracks have begun to appear in AI trading. She points out that the implied volatility of QQQ options has been consistently higher than actual volatility in recent weeks, and therefore proposes a strategy of selling November 13th expiration 720/710 put spreads to collect premium when the market corrects but volatility is lower than option pricing. The article also warns that CPI, bank and TSMC financial reports, as well as events such as Microsoft's Alphabet and Federal Reserve decisions, are major risks.
Helpful
No.Help

Although the "Big Seven of U.S. Stocks" are still reaching record highs, cracks are beginning to appear in AI trading. Concerns about revenue growth for OpenAI have hit "New Cloud" stocks, and chip stocks were also sold off on Tuesday due to fears of competition from China.

Coupled with the Federal Reserve's first interest rate hike in September since 2023, and the market expecting another hike to follow shortly thereafter, this index, which is dominated by tech stocks, faces considerable resistance.

These pressures do exist, but option traders have been prepared for greater fluctuations in recent periods, and the actual volatility on NASDAQ has not reached that level.

An indicator that measures the volatility priced in by options traders – the QQQ Implied Volatility Index (VIX) – closed at nearly 20.7% on Monday. This makes the volatility of the Nasdaq 100 index comparable to that of small-cap stocks. The Russell 2000 usually has a higher IVx than the Nasdaq 100, but currently, both the QQQ and the iShares of the Russell 2000 are actually around 20.7%, while the ETF of the S&P 500 is 15%. Moreover, for 29 consecutive trading days, the IVx of the QQQ has been at least 3 percentage points higher than the actual volatility realized by that index.

In other words, every day since the beginning of September, the volatility reflected in option pricing has been greater than the actual volatility that ultimately occurred with QQQ. The selling pressure this week has not yet managed to close this gap.

This gap is where the opportunity lies.

When the market is falling, but the actual volatility is less than what the options expect, selling the option premium during this weakening period allows traders to set the strike price below the market level that has already dropped, while also receiving a higher price for it.

This transaction

Based on the closing price on Monday, I sold a put spread with expiration on November 13th, with strike prices of 720/710, and received a premium of approximately $1.81.

This is a trade that is biased towards bullish to neutral, in line with the trend of QQQ since this autumn. Even after this week's pullback, QQQ has still risen by about 5% since early September and reached a record high just a week ago. This trade does not require a complete reversal of the pullback; it only needs to maintain a controllable downward trend before November 13th—or before it is actively managed. As long as QQQ remains above $720 before November 13th, this trade can achieve a maximum profit of $181. The $720 put option is located slightly below the 50-day moving average of $726, while the $710 put option is slightly below the lower edge of the market's expected range of volatility, around $713. The break-even point is $718.19, which is about 3.7% lower than the closing price on Monday, meaning that even if there is further pullback during the earnings season, this trade still has room for improvement.

The reason for choosing the weekly options for the week of November 13th is to avoid NVIDIA's financial report, which is expected to be released around November 18th. The QQQ options have sufficient liquidity, so their weekly options can be used for this transaction.

If at expiration, QQQ closes below $710, which is about a 4.8% decrease from the current level, the maximum loss would be $819. The premium collected is somewhat modest, but it is a price to pay for a wider buffer zone: the theoretical probability of profit on this trade is 70%, while the theoretical probability of achieving half of the maximum profit is 80%. If at expiration, QQQ closes between $710 and $720, the sold put option may be exercised, resulting in an obligation to buy 100 shares at $720 per lot. After deducting the premium, the actual holding cost would be approximately $718.19, which is about 5.5% lower than the historical high. QQQ last closed below $720 on September 17th. Given this exposure, investors may consider closing the position before expiration or rolling it over, rather than holding until settlement.

The biggest risk comes from the schedule: On Wednesday, CPI will be announced. This week, there are also financial reports from bank stocks and TSMC. On October 28th, Microsoft and Alphabet will release their earnings, and on the same day, there will be a Federal Reserve interest rate decision as well.

Nasdaq is under pressure, but its fluctuations have not yet exceeded the pricing in the options market. This transaction involved selling option premiums amidst this weakness, while also leaving room for the market to weaken further slightly.

Disclosure:Spina holds this trading position.

The views expressed by the author of CNBC Pro represent solely their personal opinions and do not reflect the views of CNBC or its parent companies, affiliated companies. These opinions may have also been disseminated through television, radio, the internet, or other media before. This content is part of editorial material and is provided for informational purposes only. It does not constitute financial, investment, tax, or legal advice, nor does it represent a recommendation to purchase any securities or other financial assets. The content is of a general nature and does not take into account any individual's specific circumstances. Before making any financial decisions, you should consider seeking advice from your own financial or investment advisor.

Tip
$0
Like
0
Save
0
Views 26
HQYC reminds readers to view blockchain rationally, stay aware of risks, and beware of virtual token issuance and speculation. All content on this site represents market information or related viewpoints only and does not constitute any form of investment advice. If you find sensitive content, please click“Report”,and we will handle it promptly。
Submit
Comment 0
Hot
Latest
No comments yet. Be the first!
Related
Airport attacks make the aviation industry a frontline of geopolitical conflicts
The attack on Riyadh Airport in Saudi Arabia highlights that conflicts in the Middle East are disrupting air travel on a larger scale. Airlines have been forced to cancel or reroute flights, and as a result, some routes and capacity arrangements have also been adjusted.
CNBC
·2026-10-14 02:42:57
9
Strive Spends $280 Million to Buy Bitcoin, Creating the Largest Single Purchase in Months
Strive reveals that from October 5th to October 9th, it purchased 3,311 bitcoins for approximately $280 million, with an average purchase price of around $84,500 per bitcoin (including fees), which is the largest single purchase since January of this year. After this increase in holdings, its total bitcoin position has risen to 32,773 coins.
Decrypt
·2026-10-14 02:33:12
10
Interactive Brokers Adds Ethereum Staking; $900 Billion Brokerage Firms Continue to Expand Their Crypto Business
Interactive Brokers indicates that this brokerage firm, with an asset scale of over $903 billion, has launched an Ethereum staking service through Zerohash. Eligible customers can apply to stake or cancel staking within its Client Portal. The company also lists 20 types of digital assets that support trading, and mentions existing crypto-related services such as stablecoin deposits, wallet transfers, Coinbase Derivatives futures, and predictive markets.
crypto.news
·2026-10-14 02:33:09
13
Palantir executive claims that AI researcher smokes as a sign of belief that AI will cure cancer
Palantir Chief Technology Officer Shyam Sankar stated in the CBS program that many AI researchers have started smoking in order to show their colleagues how much they believe that AI can cure cancer. He did not provide any data or name any specific researchers. The article also mentioned that the US Centers for Disease Control and Prevention (CDC) states that smoking is responsible for about one-third of cancer deaths in the United States, while Anthropic CEO Dario Amodei argued that only by truly curing cancer can AI win the public's trust.
Decrypt
·2026-10-14 02:22:51
14
Apple's Apple Watch Sleep Apnea Detection Feature Officially Launched, Understanding Your Breathing One Step Ahead
Apple will release a new system via OTA at 1 a.m. on October 14th. After upgrading to iOS and watchOS, eligible Apple Watch users will be able to activate the "Sleep Apnea Indication Reminder" feature. This feature has previously been approved by the National Medical Products Administration and has entered the domestic market as a Class II medical device, suitable for adult users over 18 years of age who have not been diagnosed with sleep apnea before.
The Block
·2026-10-14 02:22:50
13
View More