Using options to bet on a bounce in this casualty of Monday’s AI stock rout

A Chinese startup, DeepSeek AI, caused a significant knee-jerk reaction in the markets Monday, leading the Nasdaq to drop nearly 4% at one point. This dramatic pullback hit many semiconductor heavyweights, but the impact wasn’t limited to that sector. Power companies with heavy exposure to the tech sector’s data center boom also plunged as DeepSeek’s claims raised questions about how much energy artificial intelligence applications will actually require. One particular stock of interest is Vistra (VST) . In the 6-month daily chart below, you’ll notice that VST gapped down an eye-popping 30%, closing around $137ish, which coincides with an area of short-term support. When a massive knee-jerk reaction like this occurs, technical indicators often become irrelevant. Since most indicators are lagging, they take time to adjust and catch up to the new price action. However, trade opportunities can still emerge by carefully analyzing price action and identifying support and resistance levels. This is a classic case where observing the market’s behavior and key price levels can help uncover actionable trade setups even amidst chaos. Given the extreme nature of this market overreaction, a bounce is imminent and VST being at a support area provides clues as to where a relief rally may emerge. To take a bullish position on VST, I’m utilizing a bull call spread strategy. The trade At the time of writing, VST is trading around $141, so this trade involves: Buying a $140 call option (just below the current price). Selling a $145 call option (just above the current price). This creates a defined trade structure that sandwiches the current price between the strikes. The exact strikes can be adjusted based on where VST is trading when you enter the trade. If, by expiration, VST is trading at or above $145, this trade will deliver a 100% return on investment (ROI) on the capital deployed. For example, with 10 contracts, the trade risks $2,500 to potentially earn $2,500. This strategy provides an excellent balance of capturing bullish momentum while keeping the risk well-defined and manageable. It’s ideal for trading setups like this, where the stock shows signs of stabilization at key support levels. Here is my exact trade setup: Buy $140 call, Feb 21st expiry Sell $145 call, Feb 21st expiry Cost: $250 Potential Profit: $250 -Nishant Pant Founder: Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader (I explore setups like these in greater depth in my book, Mean Reversion Trading , and provide additional resources and insights on my website: .) DISCLOSURES: (Nishant has a VST 135-140 bull call spread expiring on 2/21/2025.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.