Key Takeaways
- Executing a partial profit-take on a long-dated options position to cover the initial cost basis is a disciplined strategy for managing risk in high-beta, narrative-driven stocks like SoFi. It transforms a speculative bet into a risk-free position with continued upside exposure.
- SoFi has reached a crucial inflection point, achieving GAAP profitability for two consecutive quarters in late 2023 and early 2024. This shifts the narrative from a cash-burning fintech to a more sustainable, bank-chartered institution, though the market may not have fully priced in this transition.
- The company’s growth is now driven by a more balanced mix of lending and its tech platform and financial services segments, with significant increases in deposits strengthening its balance sheet and reducing its reliance on more expensive external funding.
- While analyst sentiment is turning more positive, a wide dispersion in price targets reflects ongoing debate about valuation and the execution risks associated with maintaining growth in a challenging macroeconomic environment.
In the often binary world of growth investing, conviction can be difficult to distinguish from stubbornness. A recent tactical adjustment by the investor known as DataDInvesting serves as a useful case study in navigating this distinction. The decision involved closing a portion of a long-dated call option position on SoFi Technologies (SOFI) to recoup the entire initial investment, thereby removing all downside risk while retaining exposure to future gains. This manoeuvre is more than just prudent risk management; it provides a window into the complex calculus of positioning in a company that sits at the very crossroads of market sentiment, fundamental transition, and macroeconomic headwinds.
The Anatomy of a De-Risked Trade
Taking profit to secure one’s cost basis is a foundational tactic, yet its application to long-dated call options on a volatile stock is particularly insightful. For a position established in late 2023 and early 2024 with a January 2026 expiry, the holder is betting on a long-term narrative. However, by crystallising enough profit to cover the premium paid, the investor effectively transforms the remaining position. It ceases to be a drain on capital and becomes a pure, zero-cost lottery ticket on the company’s success. This is not an act of wavering conviction, but rather an acknowledgement of the path-dependency of high-growth equities. It recognises that even if the ultimate destination is higher, the journey is likely to be turbulent. Removing the financial risk allows one to endure the volatility without the emotional or financial pressure to capitulate at an inopportune moment.
SoFi’s Fundamental Inflection Point
The timing of such a move is inextricably linked to SoFi’s own corporate journey. For years, the company was emblematic of the “growth at all costs” fintech model, attracting both fervent bulls and deep-pocketed short-sellers. The central debate was whether its aggressive user acquisition and lending model could ever translate into sustainable profit. That debate appears to have been settled. SoFi reported its first-ever quarter of GAAP profitability in Q4 2023, a milestone it repeated in Q1 2024. [1]
This is not a minor accounting adjustment but a fundamental shift in the business model, driven by the advantages of its national bank charter. The company is now fuelled by a rapidly growing base of low-cost consumer deposits, which reduces its cost of capital and reliance on more fickle wholesale funding markets. This transition is evident in its financial results.
| Metric | Q1 2024 | Q1 2023 | Year-over-Year Change |
|---|---|---|---|
| Total Net Revenue | $645 Million | $472 Million | +37% |
| GAAP Net Income | $88 Million | ($34 Million) | N/A |
| Total Deposits | $21.6 Billion | $10.1 Billion | +114% |
| Total Members | 8.1 Million | 5.7 Million | +44% |
Source: SoFi Q1 2024 Earnings Report [1]
Despite this progress, the market’s reaction has been muted. After an initial surge following the profitability announcement, the stock has traded sideways, suggesting investors are now focused on new questions. Can this level of profitability be sustained? And what is the appropriate valuation for a business that is part bank, part lender, and part technology platform?
Analyst Sentiment and Valuation Hurdles
Wall Street remains divided on SoFi’s prospects, which is typical for a company in transition. While some analysts have raised their price targets significantly, citing the improved financial footing, others remain cautious. The dispersion in forecasts highlights the core uncertainty. If valued like a traditional bank, SoFi might seem expensive. If valued as a high-growth fintech platform, its current price could be seen as a bargain. This valuation ambiguity creates the kind of volatility that makes de-risking strategies so appealing.
| Firm | Recent Rating | Price Target | Date of Note |
|---|---|---|---|
| Keefe, Bruyette & Woods | Market Perform | $7.50 | April 2024 |
| Morgan Stanley | Equal-Weight | $7.00 | April 2024 |
| Citigroup | Buy | $11.00 | April 2024 |
| Needham | Buy | $10.00 | April 2024 |
Source: Compiled from public analyst ratings via Yahoo Finance and other financial news outlets. [2][3]
Conclusion: A Hypothesis on the Great Re-Rating
The strategy of neutralising the cost basis on a long-term options play is a textbook example of sophisticated position management. It allows an investor to maintain exposure to a compelling, albeit contentious, growth story without being beholden to its whims. For SoFi, the narrative has demonstrably improved, yet the stock price has not fully followed suit. This suggests the market is in a “wait and see” mode, demanding more than one or two quarters of profit before rewarding the company with a higher, more stable valuation multiple.
This leads to a closing hypothesis: the ultimate catalyst for SoFi will not be the next earnings beat, but rather the evidence of a fundamental shift in its shareholder base. The great re-rating will occur when institutional ownership data reveals a meaningful rotation from fast-money growth and momentum funds into the portfolios of traditional financials and value investors. This “passing of the baton” would signal that the market has finally accepted SoFi’s new identity as a durable, profitable financial institution. For those holding risk-free calls with a 2026 expiry, that is a transition well worth waiting for.
References
[1] SoFi Technologies, Inc. (2024, April 29). SoFi Technologies Reports First Quarter 2024 Results. SoFi Investor Relations. Retrieved from https://investors.sofi.com/news/news-details/2024/SoFi-Technologies-Reports-First-Quarter-2024-Results/default.aspx
[2] Yahoo Finance. (n.d.). SoFi Technologies, Inc. (SOFI) Analyst Ratings, Price Targets, and Recommendations. Retrieved from https://finance.yahoo.com/quote/SOFI/analysis
[3] MarketBeat. (n.d.). SoFi Technologies Analyst Ratings and Price Targets. Retrieved from https://www.marketbeat.com/stocks/NASDAQ/SOFI/price-target/
[4] @DataDInvesting. (2024, June 11). [Brief summary of claim]. Retrieved from https://x.com/DataDInvesting/status/1800645845378822347
