SoFi Technologies (NASDAQ:SOFI) stock is experiencing the fate of countless IPOs that have come before it — loads of potential balanced with loads of volatility.
Despite an epic amount of shoving back and forth this year, SOFI stock finds itself nearly back to where it began.
What started as a year full of starry-eyed optimism has ultimately failed to deliver.
The fact that SoFi’s wicked road to nowhere was built when the S&P 500 steadily climbed seven straight months to a 20% year-to-date gain adds insult to injury.
Still, while SoFi shares haven’t exactly rewarded investors this year for the trauma they’ve suffered, it’s been a wonderful trading vehicle for those nimble enough to nail the swings.
Furthermore, SOFI stock options have provided plenty of juice for those looking to enhance returns through selling premium.
I’ll provide just such a strategy idea today. But first, let’s take a closer look at this year’s wild ride.
SOFI Stock Chart
With SoFi Technologies still two months from its first birthday as a public company, there’s no need to address the weekly time frame.
There isn’t enough data to justify zooming out.
If I were penning this piece in early February, I would have been a raging bull trumpeting the virtues of SOFI stock. My optimism wouldn’t have been born of any particular love for the company.
Rather, it would have been because of the price action. The explosive rise that greeted shareholders at the turn of the year demanded a bullish disposition.
The stock doubled in less than a month while carving out a nice little uptrend.
Unfortunately, the gains unraveled nearly as fast as they had arrived. Worse yet, a second launch attempt in May ultimately failed, and prices again fell back to their current levels.
The inability to maintain altitude has to be frustrating shareholders, but as I alluded to during the intro, there is a silver lining to all the volatility. Options premiums are pumped up.
Traders can use this to their advantage by selling them via covered calls or naked puts. We’ll explore how to build the covered call momentarily, but first, allow me to emphasize just how liquid SOFI stock options are.
The best stocks to trade options on have thousands of open interest and tight bid-ask spreads. This makes it super easy to enter and exit quickly without taking a haircut on your position.
For whatever reason, SOFI has become immensely popular since its debut. For instance, in the October monthly options, there are about a dozen strike prices with over ten thousand contracts of open interest.
As a result, the bid-ask spreads are only a few pennies wide.
Sell Calls to Enhance Returns
Building a covered call position involves buying the stock while selling a call option. The premium received provides cash flow and some downside protection to offset losses in the stock. It also lowers your cost basis while lifting your probability of profit.
Of course, the primary drawback is limiting your profit potential in the stock, but it will still be substantial in this case. Here’s the trade structure that makes the most sense if you like this strategy.
The Trade: Buy 100 shares of SOFI at $15.47 while selling the Oct $17.50 call for 60 cents.
The 60 cent premium lowers your overall cost to $14.87. However, since you are obligated to sell shares at $17.50, your max gain is limited to $2.03. That’s a 13.7% return, which is fantastic by covered call standards.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.