Moving through the fourth quarter, the scoreboard for SoFi Technologies (NASDAQ:SOFI) points to a game-winning position in SOFI stock. But is this really the case?
Let’s examine SOFI’s offensive lines. After taking a closer look, I’ll offer a risk-adjusted play for investors to gain critical field position without getting sacked.
A Quick Overview of SOFI Stock
It has been an outstanding second-half for SoFi Technologies.
Shares are up more than 55% in 2021. The stock has delivered returns that greatly exceeds those of the tech-heavy Nasdaq, of which SOFI stock is a constituent.
Still, remaining a steadfast fan of SOFI this year hasn’t always been easy. After more than doubling in price out-the-gate into February, shares of SoFi sank more than 50% giving back almost all of its rally in just a few weeks’ time.
You can blame SOFI’s first-half fumble on what you will. But this year’s abrupt fierce rotation out of growth stocks into cyclicals and deeper value plays is a fair spot to point fingers at. That’s especially true given the timely calendar overlap.
Yet as Wall Street once more cozied up to growth narratives by late summer, SOFI stock emerged as an absolute and relative strength favorite.
Why SoFi Is Running Hot
SOFI is a disruptive, holistic fintech platform. It’s a one-stop app where members can access diversified loan products, stock and crypto trading, wealth management and robo-advisor services which are becoming a “financial services productivity loop.” The reasons to be bullish on SoFi Technologies don’t stop there, either.
SOFI is taking advantage of a ballooning neobank market vis-à-vis its Galileo platform. It’s also offering other fintech’s critical application programming interfaces (APIs) for a range of digital banking functions.
The sum of the fintech’s parts are working to deliver huge results for SOFI shareholders. Most recently, SOFI’s offensive movement came gift-wrapped with this month’s all-around terrific third-quarter earnings report. The report featured easy top- and bottom-line beats and upwardly revised guidance.
Also, with the outfit’s bank charter application widely anticipated to be approved and the ability for SoFi to further grow and monetize its digital-first ecosystem, it increasingly appears it’s the bulls’ ball to lose.
InvestorPlace’s Mark Hake — a guy that knows a thing or two about fair value and kicking a company’s tires — believes shares should fetch $25 or possibly more in the next year.
Today though, SOFI stock investors may want to consider suiting up for that end zone result using a more defensive-minded playbook that’s built for those times when championed cheers turn into Jets-like jeers.
SOFI Stock Weekly Price Chart
Source: Charts by TradingView
This past summer, when SOFI’s bears seemingly controlled the field position with shares near their year-to-date low, I discussed the purchase of a Jan $17.50/$25 bull call spread.
Earlier this month, the defined risk vertical ballooned to an intrinsic value of $7.15 versus its $7.50 max payout. Today it’s worth $1.45 intrinsically and just $1.60 with some modest time value thrown in.
There’s no specific news to account for the expunging of value. But SOFI isn’t alone either. SQ stock, PYPL and many others are acting miserable together. And it’s not just fintech.
Simply put, investors could be revisiting some of 2021’s darker and less optimistic moments in growth stocks. What’s more, a gain of 0.75% in the blue-chip Dow Industrials bolsters the case of money being put into cyclicals and value stocks at the expense of all things growth.
But should SOFI stock investors be prepared for yet another larger bearish rotation?
Seasonally we’re in that most hospitable time of year for bullish investors. Still, October didn’t pan out for bears in 2021, did it?
Today, there’s a concerning charting landscape where SOFI is failing bullish 50% and it must handle consolidation support as stochastics turn bearishly lower out of overbought territory. Ultimately, I like the longer-term narrative for SoFi. But cheering for SOFI stock with a fully hedged collar and having the ability to adjust the position’s style of play based on real-time conditions is a great alternative strategy.
Given the circumstances off and on the price chart, one collar which looks like a good way to suit up is the SOFI Feb $20/$25 collar.
On the date of publication, Chris Tyler 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.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.