Affirm options strategies come down to three things: your outlook on the stock, your tolerance for risk, and how much volatility AFRM tends to carry. Whether you want to generate income from shares you already own, hedge against a downturn, or profit from a sideways move, there's likely an options approach worth exploring. The tradeoff is always between cost, complexity, and how much upside you're willing to cap.
Key takeaways
- Covered calls on AFRM can generate income but cap your upside if the stock rallies hard.
- Protective puts act like insurance for your shares, but the premium you pay eats into returns over time.
- Implied volatility on AFRM tends to run high, which means options premiums are often richer than on lower-volatility names.
- Your strategy choice should match your directional view: bullish, bearish, or neutral.
- No single options strategy eliminates risk. Each one shifts the risk profile in a specific way.
Why does implied volatility matter for AFRM options?
Before picking any strategy, you need to understand what you're paying for. Options prices on AFRM are heavily influenced by implied volatility (IV), and fintech stocks in this category tend to have elevated IV relative to, say, a mega-cap utility.
Implied Volatility (IV): A forward-looking measure of how much the market expects a stock's price to move over a given period. Higher IV means more expensive options premiums. For AFRM options trading, this directly affects how much you collect or pay when entering a position.
High IV is a double-edged sword. If you're selling options (like covered calls), elevated IV works in your favor because you collect fatter premiums. If you're buying options (like protective puts), you're paying more for that protection. This is why understanding where IV sits relative to its own history matters before you commit to a trade.
You can check AFRM's current IV rank and historical volatility range on the AFRM research page to get a sense of whether premiums look relatively cheap or expensive.
How Affirm covered calls work
A covered call is probably the most popular income strategy for investors who already hold shares. The mechanics are simple: you own at least 100 shares of AFRM, and you sell a call option against those shares at a strike price above the current market price.
Covered Call: An options strategy where you sell a call option on shares you already own. You collect the premium upfront, but you agree to sell your shares at the strike price if the stock reaches that level before expiration.
Here's the honest tradeoff. You get paid immediately in the form of the premium. If AFRM stays flat or drifts slightly higher but doesn't reach your strike price, you keep the premium and your shares. That's the best-case scenario for this strategy.
The downside? If AFRM suddenly jumps well above your strike price, you miss out on those gains because your shares get called away at the strike. For a stock that can make large moves around earnings or product announcements, that's a real consideration. You're essentially trading unlimited upside for immediate, certain income.
When covered calls make sense on AFRM
Covered calls tend to work best when you have a neutral-to-slightly-bullish outlook. If you think AFRM is going to trade in a range for the next month or two, selling calls against your position lets you get paid while you wait. Some investors sell covered calls repeatedly, collecting premium each cycle. Over time, that income can meaningfully reduce your cost basis.
One practical consideration: pick your strike price carefully. A strike too close to the current price gives you a bigger premium but a higher chance of getting called away. A strike far out-of-the-money pays less but gives the stock more room to run. There's no objectively "right" answer; it depends on how much upside you're willing to sacrifice.
Using protective puts to hedge AFRM shares
If covered calls are about generating income, protective puts are about buying peace of mind. You own AFRM shares and you buy a put option at a strike price below the current market price. If the stock drops below that strike, your put gains value and offsets some or all of your losses on the shares.
Protective Put: An options strategy where you buy a put option on shares you own, creating a floor on your potential losses. Think of it as an insurance policy for your stock position.
The insurance analogy is apt because the same frustrations apply. If AFRM doesn't drop, you've "wasted" the premium you paid. And with AFRM's typically elevated IV, those premiums aren't cheap. Over multiple cycles, the cost of repeatedly buying puts can drag meaningfully on your total return.
Is the cost of protection worth it?
That depends entirely on your situation. If you have a large concentrated position in AFRM and can't stomach a big drawdown, the premium might be worth paying. If you have a smaller position within a diversified portfolio, the natural diversification might provide enough cushion that paying for put protection doesn't make sense.
One approach some investors use: buy protective puts only ahead of known risk events like earnings releases, when IV tends to spike and large moves are more likely. The rest of the time, they accept the normal fluctuations. The tradeoff is that IV is usually highest right before those events, so you're buying protection when it's most expensive.
What if you think AFRM will stay flat?
Not every trade needs a strong directional opinion. If you think Affirm is going to trade sideways for a while, there are options strategies designed to profit from exactly that kind of non-movement.
The short strangle and iron condor
A short strangle involves selling both a call and a put on AFRM at different strike prices, both out-of-the-money. You collect premiums on both sides, and you profit if the stock stays between those two strikes through expiration. The risk is that if AFRM makes a big move in either direction, your losses can be substantial (and theoretically unlimited on the call side of a strangle).
An iron condor is the more conservative cousin. You sell the same strangle but also buy a further out-of-the-money call and put to cap your maximum loss. You collect less premium, but your risk is defined. For a stock like AFRM that can make outsized moves, defined risk is worth considering seriously.
Iron Condor: A four-leg options strategy that profits when a stock stays within a defined price range. You sell an out-of-the-money call and put while buying further out-of-the-money options on both sides to limit risk. Maximum profit occurs if the stock stays between the two short strikes at expiration.
The catch with neutral strategies on AFRM is that high IV cuts both ways. You collect generous premiums (good), but the market is pricing in large moves for a reason (potentially bad). If the stock does break out of your range, losses accumulate quickly.
Comparing Affirm options strategies side by side
Here's a straightforward way to think about which strategy fits which scenario:
- Covered call: You own shares, you're neutral to mildly bullish, and you want income. You give up upside beyond the strike. Best when IV is relatively high (you collect more premium).
- Protective put: You own shares and want downside protection. You pay a premium that reduces your overall return. Best used selectively around high-risk periods.
- Iron condor: You don't need to own shares. You think AFRM will stay in a range. Defined risk, defined reward. Works best when IV is high and you believe the implied move is overstated.
- Long put (standalone): You're bearish on AFRM and want leveraged downside exposure. You risk only the premium paid. Straightforward but time decay works against you every day.
- Long call (standalone): You're bullish and want leveraged upside exposure. Same time decay risk. High IV means you're paying more for the privilege.
No strategy is universally "better." Each one reflects a different market opinion and risk appetite. The right choice depends on whether you already hold shares, how long you want the trade to last, and how much you're willing to lose if you're wrong.
Common mistakes with AFRM options trading
A few pitfalls come up repeatedly when investors trade options on volatile names like Affirm:
- Ignoring IV crush after earnings. IV tends to spike before earnings and collapse immediately after the announcement. If you buy options right before earnings, you need the stock to move more than the market expects just to break even. Many traders learn this the expensive way.
- Selling covered calls too aggressively. Picking a strike price very close to the current price maximizes premium but almost guarantees you'll get called away during any meaningful rally. If you're long-term bullish on AFRM, an overly aggressive covered call strategy works against that thesis.
- Treating options as lottery tickets. Buying far out-of-the-money calls or puts because they're "cheap" is a losing game over time. Those options are cheap because the probability of them finishing in-the-money is low.
- Forgetting about liquidity. Not all AFRM options strikes and expirations trade with tight bid-ask spreads. Wide spreads eat into your profit before the trade even starts. Stick to strikes and expirations with reasonable volume.
If you're newer to AFRM options, the Rallies AI Research Assistant can help you think through the mechanics of specific strategies before you commit real money.
Try it yourself
Want to run this kind of analysis on your own? Copy any of these prompts and paste them into the Rallies AI Research Assistant:
- Walk me through options strategies for AFRM that would work in different scenarios — if I think the stock will stay flat, if I want to generate income while holding shares, or if I want to protect against a drop. What are the mechanics and tradeoffs of each approach?
- What options strategies do investors commonly use on Affirm? Walk me through covered calls and puts on AFRM.
- How does implied volatility on AFRM compare to other fintech stocks, and how should that affect my options strategy selection?
Frequently asked questions
What are the most common AFRM options strategies?
The most widely used strategies on AFRM include covered calls for income generation, protective puts for downside hedging, and iron condors for profiting from range-bound trading. The best fit depends on whether you already own shares and what you think the stock will do next.
Are Affirm covered calls a good way to generate income?
Covered calls on Affirm can produce meaningful income because AFRM's elevated implied volatility tends to result in richer premiums. The tradeoff is that you cap your upside. If AFRM rallies past your strike price, your shares get called away and you miss the move above that level.
How does implied volatility affect AFRM options pricing?
Higher implied volatility makes all AFRM options more expensive. This benefits sellers (covered calls, iron condors) because they collect more premium. It works against buyers (protective puts, long calls) because they pay more. Checking IV relative to its historical range helps you gauge whether premiums are relatively rich or cheap.
Can I use options to protect my Affirm shares from a big drop?
Yes. Buying a protective put creates a floor on your losses below the put's strike price. The cost is the premium you pay, which can be significant on a high-IV stock like AFRM. Some investors only buy protection ahead of earnings or other catalysts rather than maintaining it year-round.
What's the difference between a strangle and an iron condor on AFRM?
Both profit when AFRM stays in a range. A short strangle involves selling a call and a put, with theoretically unlimited risk if the stock makes a big move. An iron condor adds protective wings (buying further out-of-the-money options on both sides) to cap your maximum loss. The iron condor collects less premium but has defined risk.
Is AFRM options trading suitable for beginners?
AFRM's high volatility means larger potential gains but also larger potential losses, which can be unforgiving for beginners. Starting with simpler strategies like covered calls (if you own shares) or paper trading options positions is a more measured approach. Make sure you understand how time decay and implied volatility work before risking real capital.
Bottom line
Affirm options strategies give you a range of tools for income, protection, and directional bets, but none of them are free lunches. Every strategy involves a clear tradeoff between premium cost, upside potential, and downside risk. The right approach depends on your view of AFRM, your existing position, and how much complexity you're comfortable managing.
If you want to dig deeper into how options fit into a broader investment research process, explore more in our stock analysis guide and use the tools on Rallies.ai to stress-test your thinking before you trade.
Disclaimer: This article is for educational and informational purposes only. It does not constitute investment advice, financial advice, trading advice, or any other type of advice. Rallies.ai does not recommend that any security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. Before making any investment decision, consult with a qualified financial advisor and conduct your own research.
Written by Gav Blaxberg, CEO of WOLF Financial and Co-Founder of Rallies.ai.
