AFRM Plummets 5.5% Amid Regulatory Fears and Underwriting Overhaul – Is This a Buying Opportunity?

Summary
• Affirm Holdings (AFRM) plunges 5.54% to $71.76, its worst intraday drop since 2023.
• New underwriting rules add real-time bank data, unlocking 12% more purchasing power for users.
• Trump’s proposed 10% credit card rate cap sparks sector-wide regulatory uncertainty.

Today’s sharp selloff in Affirm Holdings reflects a collision of bullish product innovation and bearish macro fears. While the company’s updated underwriting model aims to expand credit access, regulatory headwinds from Washington and a volatile market environment have triggered a 5.5% intraday rout. The stock now trades near its 52-week low of $30.90, raising questions about whether this is a panic-driven dip or a sustainable correction.

Regulatory Overhang and Product Launch Spark Volatility
Affirm’s 5.5% decline stems from a dual narrative: product innovation and regulatory risk. The company announced enhanced underwriting that incorporates real-time bank account balances and cash flow data, potentially expanding credit access for 12% of users. However, this progress is overshadowed by President Trump’s proposed 10% cap on credit card interest rates, which could disrupt Affirm’s buy-now-pay-later (BNPL) model. Analysts warn that such a cap would shift consumer behavior toward BNPL providers like Affirm, but also create uncertainty in a sector already grappling with evolving regulations. The stock’s intraday low of $70.84 reflects immediate profit-taking and risk-off sentiment as investors weigh these conflicting forces.

Consumer Finance Sector Mixed as Klarna Trails
The Consumer Finance sector remains fragmented, with Klarna (KLAR) down 1.4% despite Affirm’s product update. While Affirm’s real-time underwriting could differentiate it from traditional BNPL rivals, the broader sector faces headwinds from Trump’s regulatory agenda. Klarna’s weaker performance highlights investor skepticism about the sector’s ability to scale profitably amid tightening credit standards and regulatory scrutiny. Affirm’s 52-week high of $100.00 remains a distant target, but its 73.38 dynamic P/E ratio suggests valuation remains stretched compared to peers.

Options Playbook: Capitalizing on Volatility with Puts and Covered Calls
• 200-day average: $67.09 (below current price)
• RSI: 44.2 (oversold)
• MACD: -0.08 (bearish divergence)
• Bollinger Bands: $68.43–$84.71 (current price near lower band)

Affirm’s technicals suggest a short-term bearish bias but a long-term bullish trend. Key support levels at $68.43 (lower Bollinger Band) and $75.74 (30D moving average) could dictate near-term direction. The 5.5% drop has inflated implied volatility (IV) on options, creating opportunities for volatility-driven strategies. Two top options from the chain stand out:

• AFRM20260123P65 (Put):
- Strike: $65
- IV: 50.67% (moderate)
- Leverage Ratio: 110.19% (high)
- Delta: -0.1126 (moderate sensitivity)
- Theta: -0.0223 (moderate time decay)
- Gamma: 0.0318 (high sensitivity to price swings)
- Turnover: 1,969 (liquid)
- Payoff at 5% drop: $1.79 (max(0, 68.17 - 65))
- Why it works: High leverage and gamma make this put ideal for a 5% downside scenario, with IV providing a buffer against time decay.

• AFRM20260123P66 (Put):
- Strike: $66
- IV: 60.93% (high)
- Leverage Ratio: 89.53% (high)
- Delta: -0.1914 (strong sensitivity)
- Theta: -0.0378 (high time decay)
- Gamma: 0.0377 (high sensitivity to price swings)
- Turnover: 1,040 (liquid)
- Payoff at 5% drop: $2.79 (max(0, 68.17 - 66))
- Why it works: Aggressive delta and gamma position this put to capitalize on a sharp decline, though theta decay requires a quick move.

Action: Aggressive bears may consider AFRM20260123P66 into a bounce below $70.84. For a balanced approach, AFRM20260123P65 offers a safer entry with higher liquidity.

Backtest Affirm Holdings Stock Performance
The backtest of AFRM's performance after an intraday plunge of -6% 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: Regulatory Risk vs. Product Innovation
Affirm’s 5.5% drop underscores the tension between regulatory uncertainty and product-driven growth. While the company’s real-time underwriting could unlock 12% more purchasing power, Trump’s interest rate cap proposal remains a wild card. Investors should monitor the $68.43 support level and watch for a potential rebound above $75.74 (30D MA). The sector leader, Klarna (KLAR), is down 1.4%, signaling broader caution. Act now: Consider AFRM20260123P65 for a bearish bet or hold for a rebound above $76.57 (middle Bollinger Band).