Following an Insider Into an AI-Driven Name
Here's my strategy for this volatile, but potentially lucrative trade.
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The biotech sector has been on the rise over the past couple of months. This has provided plenty of covered call trades that are now significantly in the money. However, for our next covered call trade idea, we continue to look outside that sector.
Today, we are looking at a very volatile AI-driven name. The options against the equity are both liquid and very lucrative. And by selecting a call strike substantially below the current trading level of the stock, this strategy can enable a still-solid return while providing a large amount of downside risk mitigation.
Shares of online lending marketplace Upstart Holdings (UPST) are down roughly 60% since their recent highs this summer. However, they do appear to be trying to establish a floor over the past couple of weeks.
Upstart operates a lending platform powered by AI, supporting mostly personal, auto, and home equity loans. The company has originated over $50 billion in financing and seen nearly 100 million borrower repayment events since its inception. Upstart’s app and website allow prospective borrowers to fill out a form requiring loan type, amount, and term, as well as borrower information. This is an approximate five-minute process.
This activity can also occur via private-label products on lending partners’ websites or through auto dealerships that employ Upstart’s platform. An AI-powered algorithm then checks the applicant’s credit score and myriad other metrics related to credit experience, employment, educational history, bank account transactions, cost of living, macroeconomic environment, and loan application interactions, returning an interest rate. If the applicant is agreeable to the interest rate, it can complete the loan application and receive an answer — which includes passing a "hard" credit inquiry — from Upstart almost instantly. Once accepted, the funds are deposited on the next business day. Over 90% of the company’s 1.02 million loan originations in the first nine months of 2025 (YTD25) — total dollar volume of $7.81 billion — required zero human intervention.
Fee revenue at Upstart in the third quarter of 2025 was lower due to modeling errors generated by its AI-powered platform, resulting in a 330-basis-point sequential decline in loan conversions to 20.6% in the quarter. With its AI models coming under scrutiny by some sell-side analysts and significant short interest in its stock, yet solid growth prospects, recent insider buying in Upstart put this name on my radar. I established an initial position in Upstart late this past week via covered call orders.
The company has a solid balance sheet. The recent selloff appears to be an overreaction to the revenue miss as Upstart continues to tweak its AI models. Upstart’s CTO recently purchased nearly $4 million worth of shares on the dip earlier this month. A nice vote of confidence and the first insider buy in the stock in many years.
Upstart is nicely profitable and is projected to see impressive earnings and revenue growth over the next few years, reaching EPS of $3 a share in 2027 based on the median analyst firm estimate. The stock currently trades at around $37.
Option Strategy
This is how one can initiate a holding in UPST with a covered call order. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the July $30 call strikes, fashion a covered call order with a net debit in the $24.25 to $24.75 a share range (net stock price - option premium).
This strategy provides downside protection of approximately 35% with upside potential of just over 20% over the option duration even if the stock declines just north of 20% from current trading levels.
At the time of publication, Jensen was long UPST.
