I do have call options on ETFs like QQQ, which are very tech-heavy, as well as SMH, which are baskets of semiconductor companies. But buying calls on individual tech stock options incurs a larger premium, because market makers see stocks as much more volatile than indices. So they’re willing to sell you options on e.g. VTI for much less, because it’s the entire stock market and that’s never appreciated more than like 50% in a single year or something. My thesis is that market makers are making a mistake, here, and so it’s higher expected value to buy call options on indices rather than companies with an AI component.
I will add this to the FAQ because I think the article doesn’t make it clear.
Implied volatility of long-dated, far-OTM calls is similar between AI-exposed indices (e.g. SMH) and individual stocks like TSM or MSFT (though not NVDA).
The more concentrated exposure you get from AI companies or AI-exposed indices compared to VTI is likely worth it, unless you expect that short-timelines slow AI takeoff will involve significant acceleration of the broader economy (not just tech giants), which I think is not highly plausible.
I do have call options on ETFs like QQQ, which are very tech-heavy, as well as SMH, which are baskets of semiconductor companies. But buying calls on individual tech stock options incurs a larger premium, because market makers see stocks as much more volatile than indices. So they’re willing to sell you options on e.g. VTI for much less, because it’s the entire stock market and that’s never appreciated more than like 50% in a single year or something. My thesis is that market makers are making a mistake, here, and so it’s higher expected value to buy call options on indices rather than companies with an AI component.
I will add this to the FAQ because I think the article doesn’t make it clear.
Implied volatility of long-dated, far-OTM calls is similar between AI-exposed indices (e.g. SMH) and individual stocks like TSM or MSFT (though not NVDA).
The more concentrated exposure you get from AI companies or AI-exposed indices compared to VTI is likely worth it, unless you expect that short-timelines slow AI takeoff will involve significant acceleration of the broader economy (not just tech giants), which I think is not highly plausible.