Will AI Destroy More Than It Creates? VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Tech’s second-biggest slide of 2026 hits different
- How to turn this volatility into income
- One subscriber is making $5,000 to $6,000 a month with this strategy
Where will the “AI disruption” crash find a bottom? The tech-packed Nasdaq 100 index fell 1.7% yesterday. That’s its second-biggest drop of the year and its fifth drop of 1% or more in 2026. And it wasn’t just a handful of giant tech stocks dragging the index down. Half the stocks it covers ended yesterday’s session lower. Topping the list were AI darlings Advanced Micro Devices (AMD), AppLovin (APP), and Palantir (PLTR) with declines of 17.3%, 16.1%, and 11.6%, respectively. But one group saw more pain than any other: software stocks. Of the 28 software stocks in the Nasdaq 100, 19 of them were down yesterday. This continues a major theme we’ve been tracking lately – the spiraling price action in software stocks that are being disrupted by AI. As AI coding assistants have gotten more advanced, software-as-a-service (SaaS) companies have become toxic. These are firms like Salesforce (CRM), Adobe (ADBE), and Atlassian (TEAM) that sell software platform subscriptions to consumers and businesses. The prevailing notion now is, instead of buying an expensive subscription to one of these companies’ software services, firms are now able to spin up their own AI agents to do these tasks – at a fraction of the cost. Whether that will turn out to be true or not doesn’t really matter. It’s left investors wondering whether AI is more of a destructive force than a productive one. And with the Nasdaq so heavily weighted with software stocks, this shift is dragging the whole market down with it. But today, we’ll look at whether this narrative is triggering any broad market sell signals in our system. Then, we’ll show how you can exploit this volatility to generate income in the options market. | Recommended Link | | | | Every bull market ends the same way: one final massive buildout. Telecom spending exploded 8 months before the dot-com crash. Housing construction peaked 11 months before 2008. The AI infrastructure boom is following the same pattern. The biggest gains – and biggest danger – happen now. See the full analysis here. |  | | First, let’s take a 36,000-foot view of the Nasdaq 100… Here’s the chart, along with its Short-Term Health signal at the bottom: 
Short-Term Health is a shorter-term spin on TradeSmith’s classic Long-Term Health indicator. It still factors a stock’s historical volatility to determine buy and sell signals. It’s just tuned for a much more recent stretch of time. So while the index has chopped around this same level (red dotted line) since last October, its Short-Term Health is still in the Green Zone. That means it’s still a buy in our system. And our fresh Bull Market indicator – which lit up on May 14 of last year, before the Nasdaq 100 rallied as much as 22.5% – is also still active. That’s a sign the bull market is still intact. If we start to see Short-Term Health shift into Yellow, that’ll be cause for concern. That’s what happened on March 6 of last year – a month before the Liberation Day tariff announcement drove markets into a tailspin. Until then, we should look at this patch of volatility as an opportunity for a special style of trading. This strategy puts cash payments directly into your brokerage account… Most people think options trading is all about betting on whether a stock will go up or down. But at TradeSmith, we encourage a different style of options trading: selling them for income instead of buying them. Think of it like running an insurance business. When you sell a put option, you collect a payment up front – called a “premium” – from investors who want to protect against falling stock prices. In return, you agree to buy a stock at a set price below where it’s trading today. For taking on that obligation, you receive a cash payment right into your brokerage account. If the stock never drops to that lower price, you keep the premium and move on to the next trade. If it does, you’re required to buy the shares – but at a discount of where they were trading when you entered the deal. The sweet spot is when the options expire worthless. You pocket the premium and never touch the stock. How do you find these “sweet-spot” trades? The answer: Our Probability of Profit (PoP) indicator – part of our Options360 suite of trading tools. It shows you the probability of any options contract expiring worthless. If you’re trading for income, you want the PoP to be as high as possible. If you know how to easily find options that are most likely to expire worthless, this gives you the best odds of continually selling put options to generate constant streams of income. This works especially well during volatile bull markets when stocks are most often trending higher. And our newest options software tool goes a step further… Selling options with a high probability of expiring worthless is great. What’s even better is finding options like these that the market is overvaluing due to a patch of volatility. You see, when volatility strikes, investors pay abnormally high prices for put options to use them as insurance against a continued slide. By targeting these overvalued put options, you’re exploiting short-term investor panic to get paid even more than you typically would. That’s what our Fair Value tool helps you do… This tool, unique to Tradesmith, further stacks the odds in your favor when you’re trading for income. Here’s a look at the Fair Value chart for put options on the Invesco QQQ ETF (QQQ) – the main ETF tracking the Nasdaq 100 – expiring tomorrow, Feb. 6. (Note that this is just an example of the tool and not a trade recommendation. By the time you read this email, these prices have almost certainly moved.) 
The blue line on the chart shows us the theoretical fair value of each put option based on its volatility and other factors. The red dots show where each options contract traded as of Wednesday’s close. They appear above the blue fair value line. So we know that each of those options contracts are overvalued. When you’re selling options, that’s exactly what you want. You want to capture more value than what’s “fair” to increase your odds of success. And because these put options expire Feb. 6, selling them means you’re bullish on QQQ through this Friday. As you can see, put option contracts are wildly inflated on QQQ right now. The $590 contract, for example, has a Fair Value of $0.02. That makes this contract overvalued by 8,178% – and the PoP algorithm gives the trade 49% odds of expiring worthless. 
If you doubt that QQQ will drop to $590 per share by tomorrow’s close – another 2.7% fall from where it closed Wednesday – then you could sell that contract and exploit this anomaly. Just be aware that if QQQ does drop, you will need the capital or margin on hand to buy the shares – 100 of them per contract you sell. That’s an important wrinkle with selling put options. At the end of the day, you’re exposing yourself to potentially buying 100 shares of the underlying stock you’re trading at the strike price. In the case of the trade above, that means having $59,000 in cash or a brokerage account that will lend you that in margin. You need to be comfortable with this situation before you set out to sell options. If you are assigned the shares, you can hold them, sell them right away, or even use other options strategies – like covered calls – to generate income in different ways. But the first essential question to ask yourself is whether you’re ready for a potential assignment. This breakthrough makes Options360 even more powerful… The PoP helps you find the trade with the best odds of making money. The Fair Value chart helps you find the most overvalued options to sell, giving you the chance to put extra income in your pocket. And these tools work in concert to help you build a long-lasting, low-risk cash generation strategy. If you think you can’t trade this way, think again… The message below comes from Mike D., an 80-year-old subscriber to Constant Cash Flow – part of our Options360 suite of tools. He says he’s been doing 30 trades a month for over a year and a half. We recently asked him for an update on his performance, and this is what he had to say: “I am completely sold on Constant Cash Flow. Even through the turbulent times we have recently experienced, I still had no losers and continued with generating $5,000 to $6,000 per month using approximately $100,000 in trading capital (I trade in a portfolio margin account.) As I said before, I am retired and not looking for the moonshots any longer, just consistent returns. So for anyone sharing my circumstances I highly recommend following the Constant Cash Flow strategy!” – Mike D. Our newest Options360 innovations – including the Fair Value chart and tons more features and upgrades – are a testament to TradeSmith’s goal as a fintech and research firm. We want to give you the tools to put the edge on your side, no matter how you like to trade. If you like to sell options, Options360 gives you an edge and makes it easier than any other toolkit we’ve seen. Our CEO Keith Kaplan recently gave a comprehensive breakdown of the new tools in Options360 and how you can use them to your advantage. Go here for the full details. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily | 
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