$SoFi Technologies Inc.(SOFI)$ is going to report its earnings for Q3 2023 on 30 October 2023 before market opens.
Market is expecting a $0.08 loss earnings per share for Q3. Profit expectations are neither particularly high nor low and SoFi Technologies has a favorable profit beat history: In the last eight quarters.
SoFi Technologies (SOFI) broadens offerings, attracting hundreds of thousands of new customers. Investors are optimistic that SoFi’s business will benefit as government-backed student loan payments resume after a three-year pause due to the pandemic.
Though economic growth surged in the third quarter, market expert think this would not last and this is the same thing that we have been hearing all year around.
Consumers, particularly millennial consumers that SoFi serves have been doing well. This could mean solid interest income and a fat net interest margin. if loan volumes grew a little faster than analysts think, it could mean a big earnings surprise. Maybe even a profit.
In this article, I will be looking at how we can use the options implied move and data to see how SOFI post earnings share price movement would be like.
SOFI Post Earnings Movement
The options market overestimated SOFI stocks earnings move 67% of the time in the last 9 quarters. The predicted move after earnings announcement was ±15.8% on average vs an average of the actual earnings moves of 13.4% (in absolute terms).
SOFI Earnings Implied Volatility Crush
Average Implied Volatility Crush For SOFI Earnings: 23%
Average 30 Day Implied Volatility 1 Day Before Earnings: 95.7
Average SOFI 30 Day IV for the Day of Earnings: 74.3
Average 30 Day Implied Volatility 5 Days After Earnings: 68.4
SOFI Open Interest
The option open interest in SOFI climbed 7.3% to 2.1 million contracts. The current open interest is above its 52-week average of 1.8 million contracts.
Currently, the OI percentile rank is 71.5%. So, SOFI had a higher OI 28.5% of the days in the last year.
This indicates there is a lot more demand to trade and carry option positions in SOFI than normal. The most notable increase was in the 03-Nov-23 expiration which added +57,726 contracts.
SOFI Call Open Interest: The open interest in SOFI call options increased by 1.8% to 1.3 million contracts. However, call open interest is down -9.1% in the last 5 days. Compared to its 52-week average of 1.1 million contracts, the current call open interest for SOFI is stronger than usual.
SOFI Put Open Interest: The open interest in SOFI put options has grown by 17.2% to 812,221 contracts. However, put open interest has fallen -9.4% in the last 5 days. Compared to its 52-week average of 687,971 contracts, the current put open interest for SOFI is higher than usual.
SOFI Put/Call Ratio (Open Interest): In the last 5 days, the put/call ratio for SOFI decreased by -0.3% to 0.6.
Option open interest is a measure of the total number of outstanding option contracts that have not yet been settled or closed. SOFI has a total open interest of 192,560 contracts and a put-call ratio of 1.11 for options expiring Nov 03, 2023 (4 days).
Based on following chart, we can see that there is a high Put open interest with strike price 6.5.
Put Contract (Strike Price : 6.5) - Assume that SOFI price will drop after its earnings release
Currently SOFI closes at $6.87 on Friday (27 Oct), And 1267 put contracts traded for $0.84 per put option at $6.50 strike price, with an expiration date on 03 Nov.
If we were to LONG this put options at $0.84, if SOFI falls below $6.50 on Monday (30 Oct) after its earnings report, we can exercise this put option to sell the stock at $6.50.
However, if the stock price remains above $6.50, the (put) option will expire worthless.
SOFI Implied Move (Latest)
Based on what the latest implied move suggest we can see that the actual move is within range but it is in the lower end.
This could mean that there is a possibility of SOFI losing -4.5% off last traded price ($6.87) - $0.30. This could bring SOFI into the range of $6.50 to $6.60.
Market have been expecting that a profit might be possible, but I think we need to be cautious on this.
Bear Call Spread (Credit Call Spread)
A bear call spread is a type of vertical spread. It contains two calls with the same expiration but different strikes. The strike price of the short call is below the strike of the long call, which means this strategy will always generate a net cash inflow (net credit) at the outset.
If we look at how we can minimize risk yet generate some income. This Bear Call Spread on SOFI might be suitable.
The short call's main purpose is to generate income, whereas the long call simply helps limit the upside risk.
The profitability of the strategy depends on how much of the initial premium revenue is retained before the strategy is closed out or expires. As the strategy's name suggests, it does best if the stock stays below the lower strike price for the duration of the options.
Still, an unexpected rally should not provoke a crisis: though the maximum gain of this strategy is very limited, so are potential losses.
Why I decided on this is because I am expecting SOFI to trade lower despite they could post a profit, as tailwinds are still coming on top of the geopolitical tensions, not forgetting layoffs are increasing as well.
Summary
Based on what market is expecting for SOFI, we can understand that why it is positive that SOFI might come with a profit in this quarter earnings, but not forgetting that good positive earnings does not equal to a share price rally.
There are other headwinds or tailwinds that we might be expecting, will there be a possibility that student loans repayment is paused once again?
Appreciate if you could share your thoughts in the comment section whether you think SOFI would sow a profitable quarter or will its guidance or outlook for rest of year be affected by geopolitical events?
@TigerStars @Daily_Discussion @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
Comments
I wish I could share in this optimism. A third guidance increase could be a catalyst to push SOFI back into an uptrend
I believe management will continue to execute as well in the future and I continue to increase my position!
I have not been a big believer in SOFI until recently, but the momentum is getting harder to ignore
Nice run up into earnings, oh wait, nope! Will be lucky to hold 6 after earnings
I am also a believer that this stock is going places given enough time.