Melt-Up Signal Flashing: 5 AI LEAPS Under $0.08 to Watch

The word 'melt-up' doesn't come from cautious people. When Chris Harvey at CIBC Capital Markets starts using that language publicly on Bloomberg, it's not noise — it's a directional signal from someone paid to be right. The AI-driven selloff that rattled portfolios last week wasn't a trend reversal. It was a shakeout. Dip buyers stepped in almost mechanically, and the recovery wasn't tentative — it was confident. That tells you something important about market structure right now: the path of least resistance is still higher, and the crowd that sold AI into weakness is about to learn an expensive lesson. For options traders sitting on the sideline waiting for 'clarity,' the window on cheap premium is closing faster than most people realize.

What's Actually Happening

Let's be precise about what this week's price action actually means. The selloff that preceded this bounce was AI-led — meaning the highest-momentum, highest-multiple names took the brunt of the drawdown. That's not a sector in trouble. That's a sector digesting gains before its next leg. When the underlying thesis (AI capex cycle, enterprise adoption, infrastructure buildout) hasn't changed, a momentum-driven selloff is a gift wrapped in panic.

The macro backdrop reinforces this. The economy isn't breaking. Corporate earnings have been resilient enough that institutional desks aren't de-risking in any serious way — they're trimming and rotating, not exiting. That's a fundamentally different posture. When Harvey uses the phrase 'melt-up,' he's describing a scenario where positioning is still too cautious relative to the actual economic and earnings reality, meaning there's fuel left for a sustained, potentially violent grind higher.

What makes this setup interesting isn't just the directional call — it's the velocity implied by a melt-up scenario. Melt-ups don't give you clean entries. They punish underweight positioning and reward traders who are already in before the acceleration begins. That asymmetry is exactly where deep OTM LEAPS live.

Why Options Traders Should Pay Attention

Here's what most retail options traders get wrong after a selloff-and-recovery sequence: they assume implied volatility is still elevated and that buying calls is expensive. Sometimes that's true. Right now, for specific deep OTM LEAPS on large-cap AI and tech names, it's the opposite story.

When a sharp sector selloff happens and then reverses quickly, IV often collapses faster than price recovers. Market makers who jacked up IV into the fear event start bleeding it back out the moment panic subsides. For traders looking at 12–24 month LEAPS, this creates a narrow window where you're buying options that are simultaneously:

• Priced at post-fear premium levels that haven't fully normalized
• Far enough out-of-the-money that they're still sub-$0.08 per contract
• Long-dated enough to survive multiple consolidation phases before a potential melt-up materializes

The catalyst calendar matters too. We're heading into a stretch of earnings cycles, potential Fed pivots, and ongoing AI infrastructure announcements from the hyperscalers — Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), and Nvidia (NVDA). Each one of those events is a potential IV expansion moment. If you're already long LEAPS before those catalysts hit, you don't need the stock to move massively on the day — you need the expectation of a move to reprice your position. That's the edge.

The melt-up scenario specifically amplifies this because it implies a prolonged period of upside momentum. That's the ideal environment for deep OTM calls: time works for you instead of against you, and each new high water mark in the underlying pulls your strikes closer to the money.

The LEAPS Angle

Let's talk about structure. A deep OTM LEAPS call priced at $0.05 on a large-cap AI-adjacent name — think semiconductor infrastructure players like Broadcom (AVGO) or cloud infrastructure names like Meta Platforms (META) — represents a defined-risk bet that costs almost nothing relative to the potential payout if the melt-up thesis plays out.

Realistic scenario: You buy a January 2026 call on a name trading at $180, with a $250 strike, for $0.06. If the stock hits $260 by mid-2025 — a scenario entirely consistent with a melt-up narrative — that $0.06 call could be worth $1.50–$3.00+, depending on time remaining and IV. That's a 25x–50x return on a position that costs $6 per contract. You don't need to bet the farm. You need to be right about the direction and patient about timing.

The critical variable most traders underestimate is strike selection relative to realistic melt-up targets. Going too far OTM (strikes that require a 60%+ move) turns a smart speculation into a lottery ticket. The sweet spot is typically 20–35% OTM on names with strong AI revenue exposure, where a melt-up scenario could realistically bridge the gap within the LEAPS timeframe.

Surfacing these setups manually is tedious — you're sifting through hundreds of option chains looking for the specific combination of price ($0.01–$0.08), liquidity, and catalyst alignment that makes a LEAPS position worth owning. This is exactly the problem StrikeEdge was built to solve. Traders use it to scan across large-cap names in real time, filtering for deep OTM LEAPS in that precise penny-premium range before volume and price action tip off the broader market. In a fast-moving melt-up environment, being early to the scan is being early to the trade.

Names worth scanning right now in the context of AI momentum: Nvidia (NVDA), AMD (AMD), Palantir (PLTR), Super Micro Computer (SMCI), and Arista Networks (ANET). Each has distinct AI revenue catalysts and has demonstrated the kind of explosive move history that makes deep OTM LEAPS worth the speculative allocation.

Key Risks to Watch

The melt-up thesis has a clean kill switch: macro deterioration. If labor market data turns south sharply or inflation re-accelerates in a way that puts Fed cuts back off the table, the 'solid economy' pillar underpinning this rally cracks. Without that foundation, dip buyers become reluctant, and AI multiple expansion stalls.

There's also the concentration risk embedded in the AI trade itself. When a selloff hits, the most crowded names get hit hardest and fastest. Deep OTM LEAPS on high-beta AI names can see their value evaporate in days during a risk-off episode — not because the long-term thesis is wrong, but because IV spikes and delta works against you simultaneously.

Finally, watch for earnings disappointments from the hyperscalers. If Microsoft (MSFT) or Alphabet (GOOGL) guides down on AI capex return timelines, it won't just hit their stocks — it'll reprice the entire AI infrastructure complex overnight. Position sizing in deep OTM LEAPS should reflect that these are high-conviction, low-cost speculations — not core portfolio holdings.

The melt-up signal is flashing, but signals don't execute trades — you do. The setup here is straightforward: identify the large-cap AI names with the most direct revenue exposure to the cycle, find LEAPS priced under $0.08 in the 20–35% OTM range, and size positions so that a total loss is survivable while a 20x outcome is meaningful. The dip-buyers who stepped in this week aren't tourists — they're setting the stage for the next leg. The only question is whether you're positioned before it starts moving.