Wall Street Is Very NervousShould You Worry? Can You Repair Your Losses?

On Oct. 23, the Dow Jones Industrial Average fell 652.82 points, or 1.23 percent, closing at 52,215.16. For the week of Oct. 19–23, the Nasdaq Composite declined 0.7 percent. And beneath these headline figures, technology and semiconductor stocks have experienced sharper declines.Investors are increasingly questioning whether the enormous spending on artificial intelligence (AI) will generate sufficient returns. Are we witnessing a normal market correction—or are deeper risks building beneath the AI boom?Wall Street Is Buying Credit Protection Against AI RisksOne warning sign is increased activity in the credit default swap (CDS) market. A CDS is a financial contract that can protect an investor against certain credit losses if a company experiences a qualifying credit event, such as default. Think of it as insurance against specific problems with a company’s debt—not insurance against its share price falling.Market reports have highlighted increased CDS trading activity involving major technology and AI-related companies, including Oracle, Alphabet, Amazon, Meta Platforms, Broadcom, and Nvidia. The broader concern is that the AI boom is becoming increasingly expensive to finance, with companies committing enormous sums to data centers, chips, electricity generation, and networking infrastructure.However, there is an important distinction: increased CDS trading does not necessarily mean investors expect a financial crisis. Trading volume is not the same as the amount spent on protection, and more hedging does not automatically mean the market expects a company to default.Nevertheless, investors should pay attention to how AI infrastructure is financed. Some companies have substantial cash flows and established businesses, while others are more dependent on borrowing and continued investor confidence. If AI revenue grows quickly enough, these investments could generate attractive returns. But if demand disappoints or operating costs rise faster than expected, some businesses could struggle to justify their spending. Companies that have borrowed heavily may then face greater pressure to refinance their debt.The question investors should ask is straightforward: Who is financing the AI boom, how much debt is involved, and will the investment generate an adequate return?Semiconductor Stocks: Is the AI Boom Becoming Too Risky?Semiconductors are at the heart of the AI revolution. The industry supplies processors, memory, storage, and manufacturing equipment used to power AI services. Yet even companies benefiting from long-term demand can experience dramatic share-price declines. Investors may become nervous about valuations, profit expectations, supply constraints, or the possibility that technology spending has grown too aggressively.The Magnificent SevenThe seven stocks commonly known as the Magnificent Seven are:Apple (AAPL)Microsoft (MSFT)Nvidia (NVDA)Amazon (AMZN)Alphabet (GOOGL or GOOG), Google’s parent companyMeta Platforms (META), the parent company of Facebook and InstagramTesla (TSLA)These companies have had an enormous influence on U.S. stock-market performance, but they are not interchangeable. Nvidia supplies AI processors, while Microsoft and Amazon operate major cloud platforms and invest heavily in AI infrastructure. Alphabet must balance its established search and advertising businesses with the growth of AI. Apple relies heavily on consumer devices and services, while Meta Platforms generates most of its revenue from digital advertising. Tesla operates in electric vehicles while investing in autonomous driving, robotics, and related technologies.Each company has different growth opportunities, competitive pressures, capital requirements, and valuation risks. Their earnings drivers and financial strengths also differ. A decline in one does not automatically mean the entire group is in trouble.The critical issue is whether future revenue, profits, and cash flow can justify today’s prices. A company can report strong earnings growth and still disappoint investors if expectations were even higher.Stocks With Drawdowns That Test Investors’ PatienceA drawdown measures how far a stock has fallen from a previous high. Consider SanDisk (SNDK). After reaching a closing high of approximately US$2,335 in June 2026, it closed at US$1,238.03 on Oct. 23—a decline of approximately 47 percent.Other volatile technology and infrastructure stocks worth watching include Western Digital (WDC), Seagate Technology (STX), Credo Technology (CRDO), Super Micro Computer (SMCI), Arm Holdings (ARM) and Coherent (COHR). These companies have different business models, but their exposure to technology spending, changing expectations, and high valuations can produce substantial price swings.For many investors, a 20 percent loss is already difficult to tolerate. A 40 percent or 50 percent decline can trigger panic selling—or tempt an investor to hold a deteriorating business simply to avoid realizing a loss.Stocks Down Heavily: Can an Option Repair Strategy Help?When a stock falls sharply, investors face a difficult choice: sell, hold, or attempt to repair the position. An option repair strategy may improve the potential outcome if a stock rebounds. It does not erase an existing loss or guarantee recovery.A classic repair strategy generally involves owning 100 shares, buying one call option near the current share price, and selling two call options at a higher strike price, all with the same expiration date. A call option gives the buyer the right, but not the obligation, to buy a stock at a specified price within a specific period.The premium received from selling the two calls helps offset the cost of buying the call. In exchange, the investor gives up some upside above the higher strike and accepts the risks associated with selling call options.SanDisk: An Illustrative ExampleSuppose an investor bought 100 SanDisk shares at $1,800 each, investing $180,000. At the Oct. 23 closing price of $1,238.03, the shares would be worth approximately $123,803, leaving an unrealized loss of $56,197, or 31.2 percent.One possible structure to investigate would be to keep the 100 shares, buy one call option with a strike price near $1,240, and sell two call options with a strike price near $1,520. All three options would have the same expiration date. These strike prices are illustrative, not a recommendation to trade. Actual option premiums, expiration dates, and market conditions must be checked before considering such a position.How Might the Repair Work?Buying the call gives the investor additional potential upside if SanDisk rebounds. Selling the two higher-strike calls generates premium income that helps offset the cost of the purchased call. Imagine, purely for illustration, that the options have zero net cost. If SanDisk falls to $1,000 at expiration, the combined loss would increase to approximately $80,000. If it remains around $1,240, the loss would remain close to $56,000. If it rebounds to $1,400, the combined loss could shrink to approximately $24,000.If SanDisk reaches $1,520 at expiration, this simplified calculation would bring the investor close to breakeven relative to the original share purchase. Above that price, the combined position would generally have limited additional upside because the two short calls offset further gains.These are simplified expiration calculations, not live option quotes. Actual results depend on premiums, transaction costs, expiration, assignment, and margin requirements. A net debit makes recovery harder; a net credit may improve the outcome but does not eliminate risk.If the stock falls further, the purchased call may expire worthless while the shares remain exposed to additional losses. Standard U.S. equity options generally represent 100 shares per contract, so this example is designed around a 100-share holding.The Most Important Assumption: The Business Must Have a FutureAn option repair strategy makes sense only if the investor has a credible reason to believe the underlying business can recover. For SanDisk, that means evaluating demand for data storage, memory-market pricing, competition, margins, and future earnings. The investor should not assume $1,800 is a fair target merely because that was the original purchase price.If revenue and earnings improve, the stock may recover. If its competitive position weakens or its business outlook deteriorates, the shares may remain depressed or fall further.An Option Repair Strategy Cannot Repair a Failing BusinessSometimes holding a fundamentally sound company may be reasonable. In other cases, reducing the position, diversifying, or accepting the loss may be wiser. The decision should be based on the company’s future prospects—not simply on the desire to break even.Investors must also understand the risks of the options themselves. Selling two call options against 100 shares can create exposure beyond the shares held if the stock rises sharply, depending on the structure and how the position is managed. The strategy should never be treated as a guaranteed or risk-free way to recover losses.Know When to Hold, Repair, or Walk AwayInvestors should not assume every AI stock will collapse, nor should they assume every AI company will emerge as a winner. Again, the Magnificent Seven are not interchangeable. Each company has different growth opportunities, competitive pressures, capital requirements, and valuation risks. Therefore, a sharp decline in one of these stocks does not automatically mean the others are equally attractive—or equally risky. Investors must examine each company’s financial strength, competitive position, earnings outlook and valuation before deciding whether to buy, hold, or sell.Remember: an option strategy cannot turn a failing business into a good investment. Your original purchase price is history; what matters is the company’s future value and the risk you are willing to take from this point forward. Ultimately, successful investing is not about recovering every dollar lost. It is about making disciplined decisions, managing risk, and protecting the capital you still have.The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.