SoFi Stock Is on Fire Sale, But Is It Too Cheap to Buy Here?

As of this writing, SoFi Technologies (SOFI) is down more than 34% for the year to date. So, the logic among the retail crowd is straightforward.

If you liked the fintech provider at $30, you should love it at $17. Indeed, various social media posts have expressed bewilderment that they’ll never understand people who were buyers of SOFI stock at a higher price but sellers at a lower price. However, this line of thinking — as intuitive as it may appear — mixes together different ontologies.

On one level, SOFI is straightforward. It’s a real company, and owning a share means you own a small piece of it, along voting rights. 

But there’s another side to it. A stock’s price is also shaped by changing expectations about the world. You can see this clearly here. When SOFI was at $30, it reflected a time when there was no conflict involving Iran. At $17, it reflects a new reality — one shaped by recent attacks and growing uncertainty about what happens next.

Let’s pause for a moment and think about a flash sale. Imagine any product – a favorite of your choosing. At 25% off, I’m at the counter already. At 90% off, I’m questioning whether the deal is too good to be true. 

This is what we see with SoFi here. At the moment, the security is structured in such a way that it could go anywhere.

The Smart Money Remains Unconvinced About SOFI Stock

One of the most important indicators in the derivatives market is volatility skew. By definition, the skew identifies implied volatility (IV) — or a stock’s potential range of motion — across the strike price spectrum of a given options chain. Effectively, this screener showcases the surface area distortion of volatility space, allowing retail traders to understand smart money positioning.

The quick and dirty explanation is that the spikes in the skew’s curvature reflect areas of concern among options market participants, who tend to rank among the more sophisticated players. For example, a rise in put IV near the left-hand boundaries (toward lower strike prices) reflects additional premium paid to protect against downside tail risk.

As it turns out, the May 15 expiration date for SOFI stock features elevated premiums for far out-the-money puts, reflecting potential concern of a meltdown. At the same time, the smart money is also positioned for upside convexity. In other words, call IV rises at the other end of the spectrum. It’s clear that speculators also don’t want to miss out on the possibility of SOFI stock ripping higher.

While this framework may provide some hope to optimists, the skew emphasizes — at least in my opinion — that SOFI stock is a pro trader’s market. Sure, the retail crowd may be convinced that $17 is a great buy-in point; however, the institutional folks don’t seem to share that same conviction.

If you look at the latest options flow screener — which focuses exclusively on big block transactions — net trade sentiment did pop to $410,400. However, the absolute gap between gross bullish sentiment (about $2.92 million) versus gross bearish sentiment (about $2.51 million in the red) isn’t that wide.

Yes, there’s a slight bullish bias, largely stemming from the mean-reversion principle. With SOFI stock losing 12% in the trailing month, it does look somewhat appetizing. However, it’s a nuanced play, one without excess cheerleading.

Think Short and Sweet

If you give weight to the inductive model, SOFI stock statistically has a favorable tendency of bouncing higher following extended downturns. However, the concern here is that the window of opportunity would likely be short. Again, if you believe in induction, you are likely to expect a quick pop over the next four to five weeks, followed by extended consolidation.

With that in mind, I’m liking the 18/19 bull call spread expiring April 17. It’s a shorter expiration window that would hopefully take advantage of the previously mentioned mean reversion principle. What’s at risk here is a modest net debit of $36 for the chance to generate a maximum payout of $64 should SOFI stock rise through the $19 strike at expiration.

In the end, SOFI could very much be like a flash sale. Yes, it may well be on discount, but you better take advantage of it quickly.