Let’s be honest: AI stocks have been the belle of the ball for the past three years.
Nvidia, AMD, Broadcom — even Microsoft and Google — they’ve all been printing money like it’s the dot-com era on steroids.
The chipmakers, cloud players, and software giants tied to AI have pulled the indexes higher while the rest of the market lagged.
And yeah, it’s been fun.
Some traders have made more money on NVDA call spreads than they made in their entire careers.
But the million-dollar question is this: How long can the AI party keep going before someone shuts off the music?
That’s where most traders freeze.
They know momentum doesn’t last forever, and they’ve seen what happens when a hyped-up sector suddenly runs out of steam.
But instead of adapting, they tend to cling to the story like retail traders and hold on too long.
They believe headlines more than price action.
And they get crushed.
Options traders don’t have that luxury.
We operate on time.
Every contract has an expiration date, even if it expires the same day.
And the AI rally is starting to show signs of aging.
That doesn’t mean it’s over, but it does mean you need to start trading smarter.
Let me walk you through how I’m looking at this.
AI Has Propped Up the Market
Here’s what most people don’t realize:
Strip out the top five AI-linked names in the S&P 500, and the rest of the market has been stuck in a sideways chop for over a year.
It’s what we call a narrow market, and narrow markets are dangerous.
They lull traders into thinking everything’s great because the indexes keep going up.
But it’s just a handful of stocks doing the heavy lifting.
What happens when they stop?
The whole index starts looking pretty wobbly.
And with rates staying higher for longer and election season adding more noise than clarity, we’ve got a cocktail for some serious volatility this fall.
How You Trade It
You don’t abandon AI altogether.
But you do stop treating it like a cheat code.
You stop YOLO’ing into every breakout and buying weekly calls on Nvidia just because it’s Monday.
You get strategic.
This is where options shine.
If you’re trading the same way now as you were a year ago, you’re doing it wrong.
In this kind of environment, you want to:
- Use defined-risk trades like vertical spreads. If the market starts to chop, you don’t get your face ripped off.
- Short inflated volatility through credit spreads on overbought names.
- Hedge your AI exposure with put calendars or cheap tail risk trades that pay off big if the rally starts to unwind.
Remember: You don’t need the rally to die; you just need to position for the next phase.
The Biggest Mistake I’m Seeing
Traders are acting like it’s still 2023, back when AI names would jump 10% on an earnings beat and no one asked questions.
That playbook’s getting stale.
Wall Street’s already moved on. They’re rotating into energy, industrials, even defense names.
The AI story is still strong, but it’s not the only one being told.
If you’re only playing momentum in AI, you’re late.
If you’re still loading up on expensive calls after a 300% run, you’re not trading, you’re gambling.
So what should you do right now?
Take a breath. Zoom out. Start planning for range-bound setups. Start selling premium.
Start managing time, not just direction.
AI stocks might keep going, but they don’t need to for you to keep making money.
Trade smart and flexible. And don’t marry the trend.
Because once the AI shine starts to fade … the people who survive are the ones who knew when to shift gears.
Stay street smart,
Jeff Zananiri
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*Past performance does not indicate future results
