Phase 2 Profits: How to Multiply Your AI Gains Without Betting the Farm

If you’ve spent any time watching what’s happening in AI, you already sense we’re in the middle of something big. The question most investors are wrestling with isn’t whether AI will change the economy. It’s how to profit from it without taking on more risk than they’re comfortable with.

Most investors will buy shares and let them compound over time. That’s exactly the right approach – and it’s what I recommend first. But there’s a second way to participate in a move like this, one that most investors never explore. It requires less capital upfront, and when a stock moves sharply in the right direction, the returns can be multiples of what you’d earn on the shares alone.

I’m talking about call options. And I’d ask you to keep reading for just a few minutes before you decide whether options are for you – because the most common reason investors avoid them is a misunderstanding of what they actually are.

Here’s the plain truth: Options are not complicated. They are not the exclusive territory of Wall Street traders or quantitative analysts. They are simply contracts that let you benefit from a stock’s movement without buying the shares outright. A $50 or $100 position can return the same dollar gain as a $500 or $1,000 equity position – when the stock moves the way you expect.

That said, options are not for everyone, and I’m not going to pretend otherwise. While they can quickly double or triple your money, they can just as quickly give it back.

My stock recommendations stand completely on their own. You can follow every one of them and never touch an option. You’ll do well.

But if you’re the kind of investor who wants to press the advantage on a high-conviction idea – to get more from a move you already believe is coming – this guide will show you exactly how. Think of options as a second gear. You don’t have to use it. But it’s there when you want it.

One practical note before we start: You’ll need to ask your broker to enable options trading on your account. It’s straightforward – more on that later. If you’re new to this, read everything your broker sends you, and direct any questions about a specific trade to them directly.

Now, let’s start with the basics.

Calls, Puts, and How They Work

An option is a contract. It gives its holder the right – but not the obligation – to buy or sell 100 shares of a given stock at a specified price on or before a designated date.

Options come in two varieties: calls and puts. Since I recommend long positions on stocks, call options would be what you’d want to focus on. So that’s where we’ll spend most of our time. But it’s worth understanding both.

A call option gives you the right to buy 100 shares of a stock at a specific price – the strike price – before the option expires. It’s a bet that the stock’s price will climb above that strike. When that happens, the option is said to be “in the money.” If the stock stays below the strike price, the option is “out of the money” – and if it’s still out of the money when expiration arrives, it expires worthless.

A put option is the inverse. It gives you the right to sell 100 shares at a specified price – a bet that the stock will fall below the strike. A put is in the money when the stock’s price is below the strike price, and out of the money when the stock is trading above it.

Since I focus on stocks I expect to go up in value, call options are what you want.

How to Read an Option Listing

Options listings can look intimidating at first glance. They’re not. Here’s what a typical recommendation looks like:

AAPL July 2026 $140 Call

This is an Apple call option. Let’s break it down piece by piece.

AAPL is the ticker symbol for Apple.

July is the expiration month. Monthly options expire on the third Friday of their expiration month. So this contract would expire on the third Friday in July.

$140 is the strike price – the price Apple shares need to exceed for this option to be in the money. The higher Apple’s share price climbs above $140, the more the option is worth.

Call confirms this is a call option, meaning we’re betting on Apple’s price rising.

Notice what we’re not doing: We are not buying Apple shares. When purchasing a call option, we are buying the right to profit from Apple’s share price movement. The key insight is that we never actually exercise the right to buy or sell shares. We simply buy the option, watch its price rise as the underlying stock moves in our favor, and sell before expiration to pocket the gain.

The goal isn’t to wake up owning 1,000 shares you never meant to hold. We buy the contract, watch its value move with the stock, and sell it back to the market before expiration. We’re trading the premium – not taking delivery of stock.

Seeing It in Action

Here’s a concrete example that puts all of this together.

Example: A $50 Position Becomes $200 Say there’s a company trading at $10 per share – strong fundamentals, accelerating sales growth, the kind of setup I look for. We think the stock is going higher and want to leverage that conviction. We buy call options with a $12 strike price, expiring in about two months. The premium is $0.50 per share. Remember, an options contract represents 100 shares. So the full cost of one contract is $0.50 × 100 = $50. We need the stock to exceed $12.50 at expiration to break even – the $12 strike plus the $0.50 premium we paid. Now, say that one month later, the company reports blowout earnings. The stock jumps 40%, from $10 to $14. With a month still remaining before expiration, our call is now trading at $2 per share, or $200 for the contract. That’s a 300% gain – on a 40% move in the stock. A $500 investment would have become $2,000 in a single month. This is the power of leverage. A modest move in the underlying stock produces an outsized return on the option.

Now let’s look at the other side.

Same setup: stock at $10, call option with a $12 strike, two months out, $0.50 premium. Total cost: $50 per contract.

This time the stock drifts to $9 and stays there. Each week without a move chips away at the option’s value. It goes from $0.50 to $0.30, then $0.15, then $0.05 as expiration closes in.

Cut it at $0.15 and you recover $15 of your $50 – a 70% loss. Hold to expiration with the stock still below $12, and the option expires worthless. The full $50 is gone.

That’s leverage in reverse. The same force that turns a 40% stock move into a 300% gain can wipe out your position when the stock goes the wrong way. It’s why I stress small sizes, clean exits, and the discipline to cut before an option decays to nothing.

What Makes Up an Option’s Price

The price you pay for an option is called the premium. It has two components, and understanding both will make you a much more effective options trader.

Intrinsic value is the straightforward part. It’s the amount by which the option is already in the money – the difference between the stock’s current price and the strike price. If a stock is trading at $27 and the strike price is $25, the intrinsic value is $2. That’s value that exists right now, regardless of what happens next.

Extrinsic value – also called time value – is everything else. It reflects the market’s estimate of how much further the stock might move before expiration. A stock with three months left on its option has more potential for movement than one with three days left. That potential is worth something, and the market prices it in.

Here’s the critical thing about time value: it erodes. We saw this in the example before this section. Every day that passes, the extrinsic value of an option declines – even if the stock stays flat. This is why you should always have a clear exit strategy before you buy an option. You cannot rely on the option’s potential forever. The clock starts the moment you enter the position.

Example: Seeing Intrinsic and Extrinsic Value You buy a call option for $3. The strike price is $25, and the stock is currently trading at $27. The $2 difference between the stock price and the strike price is the intrinsic value. The remaining $1 of the $3 premium is extrinsic value – the market’s assessment of what further movement the stock might produce before expiration. Now say the stock doesn’t move at all, but the option’s price ticks up to $4. Only $2 of that is intrinsic. The extra $2 is extrinsic – potential value the market is still pricing in. As expiration approaches, that extrinsic value will gradually fall toward zero, leaving only the intrinsic value behind. The upside: If the stock jumps to $35, the intrinsic value of your option leaps to $10 – a 233% gain on the $3 premium you paid. That’s intrinsic value doing its job.

One more thing worth knowing: Options put less capital at risk than the equivalent stock position. If you buy a $3 call on a $10 stock, you’ve committed $300 per contract. A shareholder owning 100 shares has $1,000 on the table.

If the stock drops 40%, the worst you can lose on the option is $300. The shareholder loses $400 or more if the decline continues.

More leverage, less money at risk upfront – that’s the exchange.

The Bid, the Ask, and the Spread

Like stocks, options trade with a two-sided market: a bid price and an ask price.

The bid is the highest price a buyer is currently willing to pay for the option.

The ask (sometimes called the offer) is the lowest price a seller is currently willing to accept.

A trade happens when both sides agree on a price somewhere between the two. The difference between the bid and the ask is called the spread, and it functions as an implied cost of trading. The narrower the spread, the easier and cheaper the option is to trade.

Example: Reading the Bid-Ask An option shows a bid of $1.00 and an ask of $1.05. If you buy at the ask, you pay $1.05 per share, or $105 per contract. If you sell at the bid, you receive $1.00, or $100 per contract. The $0.05 difference – $5 per contract – goes to the market maker. When the spread is wide – say, a bid of $2.00 and an ask of $2.70 – you don’t have to accept the ask. You can enter a limit order at $2.35 or $2.40 and see if the market comes to you. Just because someone is asking a price doesn’t mean you have to pay it.

Setting Up Your Options Account

If you’re interested in trading options, you’ll need to ensure your brokerage account is set up for it. That’s usually just a matter of letting your broker know you’d like the access – and in many cases it takes less than five minutes.

Every broker uses a tiered approval system. You need at least a Level 2 account to buy calls and puts. That’s the level that covers the straightforward long-options strategy I recommend. Level 1 is for covered call writing and cash-secured puts. Levels 3 and 4 cover complex strategies – spreads, naked options – that you don’t need to think about for our purposes.

If you don’t have a brokerage account yet, open one as soon as possible. Any of the major online brokers will work – Charles Schwab, Fidelity, and others. None of them charge commissions on trades anymore, which makes this easier than it has ever been. Once you’re set up at Level 2, you’re ready to go.

Read every piece of material your broker sends you before you place your first options trade. And any questions about a specific trade – position sizing, order types, account mechanics – go to your broker’s customer service team. That’s exactly what they’re there for.

How to Actually Place the Trade

Buying options is nearly identical to buying stocks. Log in to your brokerage account, pull up the options chain for the stock I’ve recommended, and look for calls – not puts. Find the contract that matches the expiration date and strike price I specified. Select the number of contracts you want, and click “Buy to Open.”

That’s it. One click, and you’re in the position.

When it’s time to exit, you’ll click “Sell to Close.” In general, I recommend taking profits when the position has moved substantially in your favor. One approach: Sell half to lock in a solid gain and let the rest run. That banks real money while keeping you in the trade if the stock has further to go.

Step-by-Step: Buying an Option 1. Log in to your brokerage account. 2. Search for the stock by ticker symbol. 3. Navigate to the options chain. Make sure you’re looking at calls, not puts. 4. Find the contract matching the expiration date and strike price specified in the recommendation. 5. Select the number of contracts you want to purchase. 6. Click “Buy to Open.” To close the position: Select the same contract, choose “Sell to Close,” and confirm.

Final Thoughts

In short, options let you participate in a stock’s upside with more leverage and less capital upfront.

A few things to keep in mind as you get started…

Never risk more on an options position than you’re prepared to lose entirely – because that outcome is always possible. Don’t let a losing position run to zero just to avoid realizing a loss. And remember that time works against you in options in a way it never does with stocks: The moment you buy a call, the clock is running.