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In my preceding options-focused SoFi (SOFI - Free Report) pitch: Bullish SoFi (SOFI - Free Report) Option Spread For Upside Catalysts Ahead, I discussed an excellent hedged way to take advantage of SOFI’s elevating volatility while maintaining a bullish longer-term outlook.
Now it looks to be time to start thinking about unwinding this volatility hedge by selling out of the previously recommended June 17 $10 puts (@ $2.25 a contract for a 44% return) and adding to your naked call option position.
A significant SOFI reversal looks to be forthcoming after a treacherous 3 months of overdone selling (over -60% off November highs).
Let’s trade it!
The Catalyst
SOFI has been taken to the cleaners following its announced $1.1 billion all-stock acquisition of the cloud-based banking-infrastructure enterprise Technisys. Investors worry that this burgeoning fintech giant is getting ahead of its skis as it makes several significant acquisitions over an abbreviated period.
This deal will dilute SOFI shares by less than 10% but generate as much as $800 million in incremental revenue growth and achieve $85 million in annual cost savings through 2025. This ~10% dilution was quickly priced into the shares when this deal was announced on February 22nd, but the material upside synergies that this deal provides are yet to be recognized by the markets.
With about 20% of SOFI shares held short (days to cover ratio of 2), growing interest on r/WallStreetBets (WSB) short-squeezing message forum, and only days till it reports its first fiscal year results (Tuesday, March 1st) as a public company, this stock looks poised for a slingshot price action.
SOFI is now teetering on oversold RSI territory, opening a high-potential trading opportunity as short-term option volumes explode with calls outnumbering puts by more than 3 to 1 (bucking the broader market trend of net positive put volumes). In fact, call option contracts expiring on Friday (2/25) are seeing an unusually high amount of activity, with 10s of thousands of one-day calls trading hands in this volatile session (a telltale sign that WSB has entered the trade).
Image Source: TradingView
You can see from the chart above that SOFI is honoring its technical as traders utilize the above Fibonacci-extension outlay (downside buy targets, drawn from January 18th low to its high two days later), which is reflected in this morning’s price action (2/24).
The golden ratio of this reversal-focused Fib (-168.2% extension @ $9.30) was hit Thursday morning, triggering bulls to buy this overdone dip with outsized option volumes and short-covering working as a near-term tailwind.
Longer-term tailwinds include fresh fundamentals from the upcoming earnings report (March 1st), realized synergies from recent acquisitions, and a flood of student-loan refinancing once the emergency Federal deferment program ends on the first of May.
The Trade
I’m looking at a bullish call option with an expiration dated into this summer. If you are looking for the simplest way to add the highest option return potential to your portfolio, then a plain vanilla call option is the way to go:
Buying SOFI July 15th $10 call: I am choosing this contract because of its tight bid-to-ask range, sufficient liquidity to get in and out with ease (high volumes), and provides 5 months of (cheap premium) leeway and two additional quarterly reports for this trade to revert to its intrinsic value.
I am setting limit orders (aka getting on the bid) for this contract at $2.00 (premium per share, but remember contracts are 100x shares). However, if you don’t get hit at $2, an additional 10% to 20% on the premium upcharge is chump-change compared to its upside potential.
Consensus price targets of over $20 per share and expectations continue to swell into SoFi’s first fiscal year-end report on March 1st. Let’s consider a conservative-case scenario, where we purchase a $10 strike July calls for $250 a contract ($2.50 quoted premium), putting the 5-month “break-even” share price at $12.50.
These price targets are sitting at more than double the quoted SOFI price today, leaving a ton of runway for these options to grow from now until July, and it almost certainly won’t take that long to get there, having seen 100% swings in just a couple weeks.
Let’s say that SOFI reaches $15 a share following its Q4 earnings release (the price it was trading around just 1 month ago). This very realistic scenario would drive our call option’s value up 100%+.
If this trade pans out early, make sure that you slowly scale out (assuming you have multiple contracts) to capture every bit of the value here. I’d set sell limits to pull incremental profit when SOFI hits $15, 17.50, 20, and $25 a share.
Recent Activity
SoFi has been on a bit of a spending spree since the pandemic began with its $1.2 billion Galileo deal announced in 2020, the completion of its bank charter spawning acquisition of Golden Pacific this month, which cost close to $800 million after accounting for the charter, and now this $1.1 billion all-stock merger.
SoFi is looking to become an unmatchable one-stop-shop for all consumer financial demands and do so with proprietary infrastructure. This fintech giant’s swift consolidation provides it with a leg up on the competition in this rapidly saturating space (more than 10,000 fintech startups in the US alone).
The latest deal for Latin-American-based Technisys would provide SoFi with the necessary tools back-end technology to maximize its back-end development capabilities and stretch its operational abilities deeper into the roots of the fintech sector.
Take advantage of recent market volatility with this exciting SOFI trade, but make sure you don’t risk more than you can afford to lose (remember that options hold intrinsically higher risk than other securities due to their leveraged nature and the notion that losing the enter premium is a possibility).
Image: Bigstock
SoFi's (SOFI) Bullish Option Activity Reveals Opportunity
In my preceding options-focused SoFi (SOFI - Free Report) pitch: Bullish SoFi (SOFI - Free Report) Option Spread For Upside Catalysts Ahead, I discussed an excellent hedged way to take advantage of SOFI’s elevating volatility while maintaining a bullish longer-term outlook.
Now it looks to be time to start thinking about unwinding this volatility hedge by selling out of the previously recommended June 17 $10 puts (@ $2.25 a contract for a 44% return) and adding to your naked call option position.
A significant SOFI reversal looks to be forthcoming after a treacherous 3 months of overdone selling (over -60% off November highs).
Let’s trade it!
The Catalyst
SOFI has been taken to the cleaners following its announced $1.1 billion all-stock acquisition of the cloud-based banking-infrastructure enterprise Technisys. Investors worry that this burgeoning fintech giant is getting ahead of its skis as it makes several significant acquisitions over an abbreviated period.
This deal will dilute SOFI shares by less than 10% but generate as much as $800 million in incremental revenue growth and achieve $85 million in annual cost savings through 2025. This ~10% dilution was quickly priced into the shares when this deal was announced on February 22nd, but the material upside synergies that this deal provides are yet to be recognized by the markets.
With about 20% of SOFI shares held short (days to cover ratio of 2), growing interest on r/WallStreetBets (WSB) short-squeezing message forum, and only days till it reports its first fiscal year results (Tuesday, March 1st) as a public company, this stock looks poised for a slingshot price action.
SOFI is now teetering on oversold RSI territory, opening a high-potential trading opportunity as short-term option volumes explode with calls outnumbering puts by more than 3 to 1 (bucking the broader market trend of net positive put volumes). In fact, call option contracts expiring on Friday (2/25) are seeing an unusually high amount of activity, with 10s of thousands of one-day calls trading hands in this volatile session (a telltale sign that WSB has entered the trade).
Image Source: TradingView
You can see from the chart above that SOFI is honoring its technical as traders utilize the above Fibonacci-extension outlay (downside buy targets, drawn from January 18th low to its high two days later), which is reflected in this morning’s price action (2/24).
The golden ratio of this reversal-focused Fib (-168.2% extension @ $9.30) was hit Thursday morning, triggering bulls to buy this overdone dip with outsized option volumes and short-covering working as a near-term tailwind.
Longer-term tailwinds include fresh fundamentals from the upcoming earnings report (March 1st), realized synergies from recent acquisitions, and a flood of student-loan refinancing once the emergency Federal deferment program ends on the first of May.
The Trade
I’m looking at a bullish call option with an expiration dated into this summer. If you are looking for the simplest way to add the highest option return potential to your portfolio, then a plain vanilla call option is the way to go:
Buying SOFI July 15th $10 call: I am choosing this contract because of its tight bid-to-ask range, sufficient liquidity to get in and out with ease (high volumes), and provides 5 months of (cheap premium) leeway and two additional quarterly reports for this trade to revert to its intrinsic value.
I am setting limit orders (aka getting on the bid) for this contract at $2.00 (premium per share, but remember contracts are 100x shares). However, if you don’t get hit at $2, an additional 10% to 20% on the premium upcharge is chump-change compared to its upside potential.
Consensus price targets of over $20 per share and expectations continue to swell into SoFi’s first fiscal year-end report on March 1st. Let’s consider a conservative-case scenario, where we purchase a $10 strike July calls for $250 a contract ($2.50 quoted premium), putting the 5-month “break-even” share price at $12.50.
These price targets are sitting at more than double the quoted SOFI price today, leaving a ton of runway for these options to grow from now until July, and it almost certainly won’t take that long to get there, having seen 100% swings in just a couple weeks.
Let’s say that SOFI reaches $15 a share following its Q4 earnings release (the price it was trading around just 1 month ago). This very realistic scenario would drive our call option’s value up 100%+.
If this trade pans out early, make sure that you slowly scale out (assuming you have multiple contracts) to capture every bit of the value here. I’d set sell limits to pull incremental profit when SOFI hits $15, 17.50, 20, and $25 a share.
Recent Activity
SoFi has been on a bit of a spending spree since the pandemic began with its $1.2 billion Galileo deal announced in 2020, the completion of its bank charter spawning acquisition of Golden Pacific this month, which cost close to $800 million after accounting for the charter, and now this $1.1 billion all-stock merger.
SoFi is looking to become an unmatchable one-stop-shop for all consumer financial demands and do so with proprietary infrastructure. This fintech giant’s swift consolidation provides it with a leg up on the competition in this rapidly saturating space (more than 10,000 fintech startups in the US alone).
The latest deal for Latin-American-based Technisys would provide SoFi with the necessary tools back-end technology to maximize its back-end development capabilities and stretch its operational abilities deeper into the roots of the fintech sector.
Take advantage of recent market volatility with this exciting SOFI trade, but make sure you don’t risk more than you can afford to lose (remember that options hold intrinsically higher risk than other securities due to their leveraged nature and the notion that losing the enter premium is a possibility).
Happy Trading!
Dan
Equity Strategist & Manager of The Headline Trader Portfolio @ Zacks Investment Research