AFRM Plummets 4.75%: What's Behind the Sudden Downturn?

Summary
• Affirm (AFRM) trades at $72.36, down 4.75% from its previous close of $75.97
• Intraday range spans $70.33 to $75.595 amid heavy turnover of 6.62M shares
• Real-time underwriting update sparks investor skepticism as sector peers remain resilient

Today’s sharp selloff in Affirm Holdings (AFRM) has sent the stock to its lowest level since late 2024, with traders reacting to a strategic shift in underwriting practices. The move coincides with broader market jitters over regulatory scrutiny in the buy-now-pay-later (BNPL) sector, though sector leader Klarna (KLAR) remains in positive territory. With technical indicators flashing caution and options volatility spiking, the question looms: is this a buying opportunity or a warning sign?

Real-Time Underwriting Update Sparks Investor Skepticism
Affirm’s 4.75% intraday drop stems from its announcement to integrate real-time bank account data into its underwriting process. While the move aims to enhance credit decision accuracy by incorporating cash flow trends and balances, investors interpreted it as a signal of operational complexity and regulatory risk. The update, which expands access to Affirm’s credit offerings but introduces data privacy concerns, has triggered a sell-off as traders reassess the company’s margin sustainability. The market’s reaction is compounded by broader fears of a potential 10% credit card interest rate cap proposed by the Trump administration, which could disrupt BNPL business models.

Consumer Finance Sector Mixed as Affirm Trails Sector Leader
The Consumer Finance sector remains resilient despite AFRM’s decline, with sector leader Klarna (KLAR) up 0.13% as of 20:24 ET. While Affirm’s real-time underwriting update faces skepticism, Klarna’s recent earnings beat and stable credit metrics have bolstered investor confidence. The sector’s mixed performance highlights divergent market perceptions: Affirm’s aggressive innovation is seen as a double-edged sword, whereas Klarna’s steady growth narrative continues to attract capital. However, AFRM’s 2.39% turnover rate—well above its 52-week average—suggests short-term volatility may persist as traders test support levels.

Options Volatility Soars: Two High-Leverage Puts to Watch
• 200-day MA: $75.75 (below current price), RSI: 44.2 (oversold), MACD: 2.09 (bearish divergence)
• Bollinger Bands: $68.43 (lower band), $84.71 (upper band), 30-day support: $75.75

Affirm’s technicals paint a bearish near-term picture, with price testing the 200-day MA and RSI signaling oversold conditions. The stock’s 4.75% drop has pushed it toward critical support at $68.43 (lower Bollinger Band), with a potential bounce or breakdown likely to dictate short-term direction. Options data underscores this volatility: the AFRM20260123P68 put option (strike $68, expiring 1/23) and AFRM20260123P70 put (strike $70, same expiry) stand out for their high leverage and liquidity.

• AFRM20260123P68 (Put): IV 65.00%, leverage 57.06%, delta -0.256, theta -0.0426, gamma 0.0413, turnover 77,177
- High implied volatility and leverage ratio suggest strong bearish potential
- Projected 5% downside (to $68.74) yields $0.74 profit per contract
• AFRM20260123P70 (Put): IV 57.28%, leverage 45.01%, delta -0.336, theta -0.0168, gamma 0.0531, turnover 49,231
- Moderate IV with high gamma makes it responsive to price swings
- 5% downside scenario (to $68.74) generates $1.26 per contract

Aggressive bears should prioritize AFRM20260123P68 for its high leverage and liquidity, while AFRM20260123P70 offers a balanced risk-reward profile. Both contracts benefit from Affirm’s elevated volatility and potential regulatory headwinds.

Backtest Affirm Holdings Stock Performance
The backtest of AFRM's performance after an intraday plunge of -5% from 2022 to the present shows favorable short-to-medium-term gains. The 3-Day win rate is 51.20%, the 10-Day win rate is 51.00%, and the 30-Day win rate is 54.78%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest was 13.98% over 30 days, suggesting that AFRM has the potential for recovery and even exceed pre-plunge levels.

AFRM at Crossroads: Watch for $68.43 Support or Regulatory Reaction
Affirm’s 4.75% drop has positioned the stock at a critical juncture, with the $68.43 lower Bollinger Band and 200-day MA ($69.61) acting as pivotal support levels. While the real-time underwriting update aims to enhance credit accuracy, the market’s reaction underscores lingering concerns over BNPL sector regulation and margin pressures. Investors should monitor the 10% credit card rate cap proposal and Affirm’s ability to maintain its 12% purchasing power lift in early 2026. Sector leader Klarna (KLAR, +0.13%) remains a benchmark for sector resilience. For now, a breakdown below $68.43 would validate bearish momentum, while a rebound above $75.75 could reignite optimism. Watch for $68.43 support or regulatory reaction.