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How To Use Long Call Options To Limit Risk On Robinhood Stock

Victor HaleMonday, May 5, 2025 3:17 pm ET

4min read

Investing in highly volatile stocks like Robinhood (HOOD) requires a strategy that balances potential reward with controlled risk. Long call options offer a way to capitalize on upside momentum while capping downside exposure. This article explores how to deploy this strategy effectively using Robinhood as a case study, supported by real-world data from May 2025.

Understanding Long Call Options

A long call option gives the holder the right—but not the obligation—to buy shares of a stock at a predetermined strike price before a specified expiration date. The premium paid for the option represents the maximum loss. For example, if HOOD is trading at $47.90 and you buy a $50 call option expiring in May for $0.70 (as seen in the May 2025 options chain), your risk is capped at $70 per contract ($0.70 × 100 shares). If HOOD rises above $50 by expiration, you profit from the difference between the stock price and the strike price.

Why Robinhood?

Robinhood’s stock exhibits pronounced volatility, making it ideal for options strategies. In May 2025, HOOD’s price swung between $45.56 and $51.30 over five days, driven by strong Q1 results (50% revenue growth) and macroeconomic uncertainty. The stock’s high implied volatility—particularly in out-of-the-money options—reflects market skepticism or speculative activity, creating opportunities for strategic buyers.

Choosing the Right Strike and Expiration

Strike Price Selection:
At-the-Money (ATM): Strikes near the current stock price (e.g., $47–$50) offer the best balance between premium cost and profit potential. For example, the $48 call option (May 2025) had an implied volatility of 69.92% and a last traded price of $1.39 (as of May 5).
Out-of-the-Money (OTM): Higher strikes (e.g., $53–$55) are cheaper but require greater price movement to breakeven. The $53 call, for instance, traded at $0.32 with 69.14% implied volatility.
Expiration Timing:
Options expiring in May 2025 align with Robinhood’s Q1 earnings impact and near-term catalysts like product launches (e.g., Robinhood Strategies). Avoid expirations beyond this period unless you’re betting on sustained trends.

Example Strategy: The $50 Strike Play

Scenario:
- Current HOOD Price: $48 (as of May 5, 2025).
- Option: Buy the May $50 call for $0.70 (premium).
- Break-even Point: $50.70 ($50 strike + $0.70 premium).

Outcomes:
- Bullish Case: HOOD rises to $55 by expiration. Profit = ($55 - $50 - $0.70) × 100 = $4,230.
- Neutral Case: HOOD stays below $50.70. Max loss = $70.

This approach limits risk while allowing participation in a potential rebound from the May 5 low of $45.56.

Navigating Risks

Time Decay: Options lose value as expiration nears. Monitor the time decay (theta) of your chosen strike.
Implied Volatility Shock: Sudden spikes in IV (e.g., the $20 call’s 384% IV) can inflate premiums, but they also signal market anxiety.
Execution Risk: Low-volume strikes (e.g., $70 calls) may face liquidity gaps. Prioritize strikes with open interest above 1,000 contracts.

Conclusion: A Data-Driven Edge

Robinhood’s May 2025 volatility underscores the need for disciplined risk management. Using long calls at strikes like $48 or $50—where implied volatility is elevated but premiums remain manageable—allows investors to:

Cap Risk: Maximum loss is the premium paid ($0.70–$1.39 per share).
Leverage Momentum: The stock’s Q1-driven fundamentals (50% revenue growth, $1.5B buyback program) support a bullish bias.
Mitigate Uncertainty: Regulatory risks or macroeconomic shifts won’t erase your capital entirely.

The data shows that call options at $40–$55 have IV between 68%–110%, reflecting moderate-to-high uncertainty but manageable pricing. By selecting strikes within this range and monitoring catalysts like product adoption metrics or Bitstamp acquisition updates, investors can deploy long calls as a tactical hedge or growth play.

In volatile markets, long calls on Robinhood offer a structured way to pursue upside while keeping risk in check—a strategy backed by both financial fundamentals and options analytics.

Data sources: Robinhood Q1 2025 earnings report, HOOD stock price history (April 30–May 5, 2025), and May 2025 options chain data.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.