Sofi Technologies (NASDAQ:SOFI) made waves in the market today, delivering impressive revenue and EBITDA gains in the fourth quarter. As a result, SOFI stock experienced a remarkable surge of over 20%. With such positive momentum, the premiums on SOFI stock put options have escalated, creating an attractive opportunity for short sellers seeking income.
On Monday, Jan. 29, Sofi revealed its Q4 earnings report, unveiling a 34% year-over-year increase in adjusted revenue, reaching $594 million. Additionally, adjusted earnings before interest, depreciation, taxes, and amortization (EBITDA) soared by an impressive 159% YoY to $181 million.
The company’s guidance for Q1 2024 indicated a continuation of robust results, including projected growth in top-line (revenue) and a steady expense forecast. The market responded positively to these projections, propelling SOFI stock up by 22% in morning trading, reaching $9.34 per share.
Achieving Targeted EBITDA Margin
SOFI proudly announced that it had reached its adjusted EBITDA margin target of 30%, as its adjusted EBITDA constituted 30.47% of revenue ($181 million out of $594 million). While adjusted EBITDA serves as a form of cash flow, it is not a complete representation of free cash flow (FCF), excluding certain elements like accrued taxes and changes in working capital and capex payments. Nevertheless, it demonstrates the company’s substantial cash flow capabilities for meeting debt obligations.
The key drivers behind this performance are the resumption of student loan payments, including accrued interest, and the growth witnessed in the company’s tech and financial services platforms. Consequently, the demand for put options has surged, making them appealing to short sellers.
Shorting Out-of-the-Money Puts in SOFI Stock
Examining the Feb. 16, 2024, expiry period reveals elevated premium levels for out-of-the-money (OTM) puts. For instance, the $8.50 strike price, positioned over 8% below the current stock price, trades at 23 cents on the bid side. Similarly, the $8.00 strike price, reflecting a 13.7% OTM level, is valued at 13 cents.
This presents an opportunity for short sellers to capitalize on the heightened premiums. For instance, shorting 10 put contracts at the $8.50 strike price could yield an immediate return of $230 for an investment of $8,500, translating to an immediate yield of 2.705%. Alternatively, a more conservative approach involving the $8.00 strike price would result in a 1.625% yield for 10 puts shorted, amounting to $130 against an $8,000 investment.
These returns are attractive for both existing SOFI investors and those willing to buy the stock at these strike prices in the event of a decline before Feb. 16. Whether anticipating a retracement or considering the stock’s overall appeal, these outstanding results position SOFI as an enticing investment opportunity.
Featured Image: Megapixl
