SOFI Surges: Buy? Sell Covered Calls. Sell Cash Secured Puts?

I cover how I’m trading stocks and options. I can’t predict markets, stock prices or interest rates. Nobody can. All we can do is trade.

By Donald E. L. Johnson

Independent Speculator

• SOFI surges 20% after hours after regulators approve its plan to become a bank.

• Stock has been in the tank.

• Some covered calls traders may have their stock called.

• Buy the speculative, unprofitable company’s stock, sell covered calls or sell cash secured puts?

Regulators said yesterday that SOFI can become a bank. Last night’s trading shows that the market likes that news. The stock was up 16% last night. Pre market this morning, it’s up about 20% to $14.43. Who knows what it will do during the day, but I’m holding on to my shares. And I’d probably sell puts if I didn’t own the stock.

Late last month and early this month, my position in SOFI was way under water. It still is.

When one of my stocks drops instead of going up as I expect when I buy it, I usually don’t bail. I sell covered calls to generate premium income while I wait for the stock to recover. And I also often at the same time sell cash secured puts at a strike 5% to 15% below the stock price, if its options are liquid enough to do that.

My average cost on the stock is $18.34 a share. When I sold the covered calls, SOFI’s options were liquid and deep enough in terms of the number of traceable strikes so that I could sell $19 and $20 strike covered calls. The January 21 expiration 30-day trade will give me a 1.53% immediate return on risk (RoR), 18.6% annualized. The March 18 expiration 66-day trade will give me a 2.67% RoR, 14.8% annualized.

That is, on 12.21.21, I sold SOFI 1.21.22 expiration $19 strike covered calls for $0.28.

On 1.11.22, I sold SOFI 3.18.22 expiration $20 strike covered calls for $0.49.

I intentionally sold the calls at strikes that were above my average cost so that if the stock is called, I will sell it at a small gain. That way I won’t have to worry about a wash sale problem if I want to buy the stock back in less than 30 days after I sell it.

The potential gain on the $19 strike trade is 3.6%. On the $20 strike trade, it is about 9%.

Here is my covered calls spreadsheet. Please click on the image and zoom in for a better view.

At this point, I may sell SOFI about 45-day puts at a margin of safety of about 10% to generate more premium income. Selling puts is a bullish trade because such a sale creates a contract for the puts seller to buy a stock or ETF at the strike price if the option expires at a price that is below the strike price. MOS is the difference between the stock price and the strike at the time of the trade. One options contract is for 100 shares.

After the market is open for an hour or two, I’ll look at the SOFI puts and post a comment on whether I sold SOFI 2.25.22 expiration $12 or $13 strike puts. The lower the strike, the less risk of having the stock assigned and the lower the ROR.

Here are some sites where you can search for more articles and charts about SOFI and other stocks and ETFs. Please do your due diligence.

LINKS:

CNBC.com

OptionsPlay.com

SeekingAlpha.com

StockCharts.com

StockRover.com

Valuentum.com

Beware. I'm an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not trading advice. I reserve the right to trade any of the listed stocks at any time. I own and/or have options  on SOFI.