InvestHH Archives

Sep

2025

Navigating the IPO Lock-up Period

By Inyoung Hwang | Growing Wealth, invest, Investing | No Comments

Table of Contents

What Is an IPO Lock-up Period?
How the IPO Lock-Up Period Works
What Is the Purpose of a Lock-up Period?
What’s an Example of a Lock-up Period?
What Does the Lock-up Period Mean for Employees with Stock Options?
How Does the IPO Lock-Up Period Affect Investors?
FAQ

Following an initial public offering (IPO), there is frequently a lock-up period to prevent major stakeholders from selling their shares, which could potentially flood the market and cause the share price to drop.

IPO lock-up periods don’t pertain to all investors in an IPO, but they do apply to certain shareholders. Here’s what to know about lock-up periods and how they work in an IPO.

Key Points

• An IPO lock-up period is a period of time after a company goes public during which employees of the company and early investors are prohibited from selling their shares.

• Companies or investment banks impose the lock-up period, which usually lasts between 90 and 180 days.

• The purpose of the lock-up period is to stop company insiders and early investors from cashing out too quickly and to maintain a stable share price.

• Companies may use the lock-up period to avoid flooding the market with shares, create confidence in the company’s fundamentals, and help prevent insider trading.

• Investors may want to pay attention to the lock-up period when investing in IPOs, as it can affect the risk of investing in the company.

What Is an IPO Lock-up Period?

The IPO lock-up period is the time after a company goes public during which company insiders — such as founders, managers and employees — and early investors, including venture capitalists, are not allowed to sell their shares.

These restrictions are not mandated by the Securities and Exchange Commission (SEC), but instead are self-imposed by the company going public or they are contractually required by the investment banks that were hired as underwriters to advise and manage the IPO process.

Lock-up periods are usually between 90 and 180 days after the IPO. Companies may also decide to have staggered lock-up periods that end on different dates and allow various groups of shareholders to sell their shares at different times.

How the IPO Lock-Up Period Works

The IPO lock-up period is typically put into place by the company going public or the investment bank underwriting the IPO. An agreement is reached with company insiders and early investors specifying that they are prohibited from selling their shares for a specific period of time after the IPO.

The purpose of the lock-up period is to prevent a sudden flood of shares on the market that could reduce the stock price. The lock-up period also sends a signal to the market that company insiders are confident in the company’s prospects and committed to its success.

Once the lock-up period is over (typically in 90 to 180 days), insiders are allowed to sell their shares if they wish.

What Does “Going Public” Mean?

Going public with an IPO means that shares of a company are being offered on the public stock market for the first time. The company is shifting from a privately-held company to a publicly traded company.

When a company is private, ownership is limited and can be tightly controlled. But when a company goes public, investors can buy shares on the public market.

It’s worth noting that when a company first goes public, there may already be a series of shareholders in the company. Founders, employees, and even venture capitalists may already own shares or have stock options in the company.

💡 Quick Tip: Keen to invest in an initial public offering, or IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.

What Is IPO Underwriting?

Before a company goes public, it generally goes through a process in which an underwriter — usually an investment bank — does IPO due diligence and helps come up with the valuation of the company, the share price of the stock, and the size of the stock offering on the market.

The underwriter also typically buys all of or a portion of the shares. They then allocate shares to institutional investors before the IPO.

The IPO underwriter will try to generate a lot of interest in the stock so that there will be high demand for it. This may lead to the stock being oversubscribed, which could lead to a higher trading price when it hits the market.

Recommended: How Are IPO Prices Set?

How IPO Lock-ups Get Used

A company or its underwriters might use the lock-up period as a tool to bolster the share price during the IPO, to prevent a sharp increase in shares from flooding the market, and to build confidence in the company’s future.

For instance, with tech startups, a great proportion of compensation may be paid out to employees through equity options or restricted trading units. In order to avoid flooding the market with shares when employees exercise these contracts, the lock-up restrictions prevent them from selling their stock until after the lock-up period is over.

Recommended: Guide to Tech IPOs

What Is the Purpose of a Lock-up Period?

A lock-up period typically has several different functions in an IPO, including the following:

Ensuring Share-Price Stability

Company insiders, like employees and angel investors, can own shares in a company before it goes public. Since share prices are set by supply and demand, extra shares can drive down the price of the stock. A lock-up period helps stabilize the stock price by preventing these extra shares from being sold for a certain amount of time.

Avoiding Insider Trading

To help avoid insider trading, company insiders may have extra restrictions regarding the lock-up period before selling their shares. That’s because company insiders might have information that is not available to the general public that could help them predict how their stock might do.

For example, if a company is about to report its earnings around the same time a lock-up period is set to end, insiders may be required to wait for that information to be public before they can sell any shares.

Public Image

Lock-up periods can also be a way for companies to build confidence in their future performance. When company insiders hold onto their shares, it can signal to investors that they have faith in the strength of the company.

On the other hand, if company insiders start to sell their stock, investors may get nervous and be tempted to sell as well. As demand falls, the price of the stock usually does, too, and the company’s reputation may be damaged.

The lock-up period can help keep this from happening while it’s in place.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

What’s an Example of a Lock-up Period?

To give a hypothetical example of how a lock-up period could work, let’s say Business X — a unicorn company — went public with an IPO in March. The company set a lock-up period of four months. In July, the lock-up period ended and early investors and insiders sold up to 400 million shares of the company. As the new shares hit the market, the stock dropped by as much as 5%, but ended the day down just 1%.

What Does the Lock-up Period Mean for Employees with Stock Options?

Restrictions imposed during a lock-up period usually apply to any stock options employees have been given by the company before an IPO. Stock options are essentially an agreement that allows employees to buy stock in the company at a predetermined price.

The idea behind this type of compensation is that the company is trying to align employees’ incentives with its own. Theoretically, by giving employees stock options, the employees will have an interest in seeing the company do well and increase in value.

There’s usually a vesting period before employees can exercise their stock options, during which the value of the stock can increase. At the end of the vesting period, employees are generally able to exercise their options, sell the stock, and keep the profits.

If their stock options vest before the IPO, employees may have to wait until after the lock-up period to exercise their options.

How Does the IPO Lock-Up Period Affect Investors?

Most public investors that buy IPO stocks won’t be directly affected by the lock-up period because they didn’t own shares of the company before it went public. However, the lock-up period can reduce the supply of available shares on the market, keeping the stock price relatively stable.

But when the lock-up period ends, if a surge in shares suddenly hits the market, this could lead to volatility and cause the price of the shares to drop. Investors should be aware of these possibilities, do thorough research and due diligence, and carefully consider the risks before buying shares in an IPO.

Reading the IPO Prospectus

You can find information on a company’s lock-up period in its prospectus, the detailed disclosure document filed with the SEC as part of the IPO process. Investors can locate a company’s prospectus by using the SEC’s EDGAR database and searching for the company by name. Then, on the company’s filing page, look for Form S-1, which is the initial registration statement. The prospectus should be included in that filing.

Waiting to Buy Until After Lock-ups End

Investors considering investing in an IPO may choose to hold off until the lock-up period is over. The reason: When the lock-up ends and company insiders are free to sell their shares, the stock price may experience volatility as the new shares enter the market. This could potentially cause a drop in a stock’s price.

Some investors may want to take advantage of the dip that could occur when a lock-up period ends, especially if they believe the long-term fundamentals of the company are strong. However, this type of timing-the-market strategy can be very risky. It depends on a number of variables, including the company itself and market conditions. In other words, there is no guarantee that it will produce good results.

The Takeaway

A lock-up period can follow an IPO. It’s a period of time during which company insiders and early investors are prohibited from selling shares of the company. One of the main purposes of a lock-up period is to keep these stakeholders’ shares from flooding the market, and to help stabilize the stock price of a newly public company.

Understanding how a lock-up period works — and how it might affect the price of a stock — can be helpful to investors who may be interested in buying shares of an IPO on the public market.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the purpose of a lock-up period?

The purpose of a lock-up period is to prevent company insiders and early investors from selling shares of stock right away, which could flood the market and cause the price of the stock to drop. A lock-up period can help stabilize the stock price and also send a message to the market that company insiders are committed to the company and confident in its future performance.

How do I know if an IPO has a lock-up period?

To find out if an IPO has a lock-up period, you can use the Securities and Exchange Commission’s EDGAR database. Search for the company by name, and on their listing page, look for a Form S-1, which is the company’s initial registration statement. In that filing, you should find the company’s prospectus, which will have information about the lock-up period if there is one.

What is the lock-up period for IPO employees?

A lock-up period is designed to prevent company insiders, including employees, from selling their stock quickly after a company goes public. That could cause the stock price to drop and might also signal that the employees don’t have confidence in the company. A lock-up period typically lasts 90 to 180 days.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
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Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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SOIN-Q325-068

Aug

2025

The Risks and Rewards of Naked Options

By Colin Dodds | Financial Independence, Growing Wealth, invest, Investing, Terminology | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

What Is a Naked Option?
The Pros and Cons of Naked Options
How to Use Naked Options
FAQ

A naked (or uncovered) option is an option that is issued and sold without the seller owning the underlying asset or reserving the cash needed to meet the obligation of the option if exercised.

While an options writer (or seller) collects a premium upfront for naked options, they also assume the risk of the option being exercised. If exercised, they’re obligated to deliver the underlying securities at the strike price (in the case of a call option) or purchase the underlying securities at the strike price (in the case of a put).

But because a naked writer doesn’t hold the securities or cash to cover the option they wrote, they need to buy the underlying asset on the open market if the option moves into the money and is assigned, making them naked options. Given the extreme risk of naked options, they should only be used by investors with a very high tolerance for risk.

Key Points

• Naked options involve selling options without owning the underlying asset or reserving cash to cover the trade if the option is exercised.

• Naked options are extremely high risk due to unlimited potential losses if the market moves against the position.

• Naked options sellers must have a margin account and meet specific requirements to trade naked options.

• Naked options strategies include selling calls and puts to try to generate income.

• Using risk management strategies is essential to try to mitigate the significant risk of loss associated with naked options.

What Is a Naked Option?

When an investor buys an option, they’re buying the right (but not the obligation) to buy or sell a security at a specific price either on or before the option contract’s expiration. An option giving a buyer the right to purchase the underlying asset is known as a “call” option, while an option giving a buyer right to sell the underlying asset is known as a “put” option.

Investors pay a premium to purchase options, while those who sell, or write options, collect the premiums. Some writers hold the stock or the cash equivalent needed to fulfill the contract in case the option is exercised before or on the day it expires. The ones who don’t are sometimes called naked writers, because their options have no cover.

Writing naked options is extremely risky since losses can be substantial and even theoretically infinite in the case of writing naked calls. The maximum gain naked option writers may see, meanwhile, is the premium they receive upfront.

Despite the risks, some writers may consider selling naked options to try to collect the premium when the implied volatility of the underlying asset is low and they believe it’s likely to stay out of the money. In these situations, the goal is often to try to take advantage of stable conditions and reduced assignment risk, even if premiums are smaller, though there is still a high risk of seeing losses.

Some naked writers traders may be willing to risk writing naked options when they believe the anticipated volatility for the underlying asset is higher than it should be. Since volatility drives up options’ prices, they’re betting that they may receive a higher premium while the asset’s market price remains stable. This is an incredibly risky maneuver, however, since they stand to see massive losses if the asset sees bigger price swings and moves into the money.

Recommended: A Guide to Options Trading

The Pros and Cons of Naked Options

Naked options offer writers the potential to profit from premiums received, but they come with a high risk of resulting in substantial losses. Here’s what to consider before using this advanced strategy.

Potential benefits of naked options

Premium income: Option writers collect premiums upfront, which can generate income if the contract expires worthless.

No capital tied up in the underlying asset: Because the writer doesn’t hold the underlying asset, their available capital may be invested elsewhere.

May appeal in low-volatility markets: While options writers often seek higher premiums during periods of elevated volatility, naked options may be attractive to some when implied volatility is low and premiums are relatively stable. This is because the price of the underlying asset may be less likely to see bigger price movements and move into the money. There is always the possibility, however, that the asset’s price could move against them.

Significant risks of naked options

Unlimited loss potential: For naked calls, a rising stock price can create uncapped losses if the writer must buy at market value. Naked puts can also lead to significant losses if the stock price falls sharply, obligating the writer to purchase shares at a strike price that is well above market value.

Margin requirements: Brokerages often require high levels of capital and may issue margin calls if the position moves against the writer.

Limited to experienced investors: Most brokerages restrict this strategy to individuals who meet strict approval criteria due to its complexity and risk.

Recommended: 10 Options Strategies You Should Know

How to Use Naked Options

Because naked call writing comes with almost limitless risks, brokerage firms typically require investors to meet strict margin requirements and have enough experience with options trading to do it. Check the brokerage’s options agreement, which typically outlines the requirements for writing options. The high risks of writing naked options are why many brokerages apply higher maintenance margin requirements for option-writing traders.

Generally, to sell a naked call option, for example, an investor would tell their broker to “sell to open” a call position. This means the investor is initiating the short call position. The trade is considered to be “naked” only if they do not own the underlying asset. An investor would do this if they expected the stock to go down, or at least not go any higher than the volatility priced into the option contract price.

If the investor who writes a naked call is right, and the option stays “out of the money” (meaning the security’s price is below a call option’s strike price), then the investor will pocket a premium. But if they’re wrong, the losses can be theoretically unlimited.

This is why some investors, when they expect a stock to decline, may instead choose to purchase a put option and pay the premium. In that case, the worst-case scenario is that they lose the amount of the premium and no more.

How to Manage Naked Option Risk

Most investors who employ the naked options strategy will also use risk-control strategies given the high risk associated with naked options.

Perhaps the simplest way to hedge the risk of writing the option is to either buy the underlying security, or to buy an offsetting option that would create an option spread, which may help limit potential losses if the trade moves against the writer. This would change the position from being a naked option to a covered option.

Some investors may also use stop-loss orders or set price-based exit points to try to close out a position before assignment, though this requires monitoring and quick execution. These strategies aim to exit the option before it becomes in-the-money and is assigned. Other risk-mitigation strategies can involve derivative instruments and computer models, and may be too time-consuming for most investors.

Another important way that options writers try to manage their risk is by being conservative in setting the strike prices of the options. Consider an investor selling a put option with a $90 strike price when the stock is trading at $100 (for a premium of say $0.50). Setting the strike price further from where the current market is trading may help reduce their risk. That’s because the market would have to move dramatically for those options to be in the money at expiration.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

The Takeaway

With naked options, the investor does not hold a position in the underlying asset. Because this is a risky move, brokerage firms typically restrict it to high-net-worth investors or experienced investors, and they also require a margin account. It’s crucial that investors fully understand the very high risk of seeing substantial losses prior to considering naked options strategies.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

🛈 SoFi does not offer naked options trading at this time.

FAQ

What is a naked option?

A naked option is a type of options contract where the seller does not hold the underlying asset, nor has sufficient cash reserved to fulfill the contract if exercised. This exposes the seller to potentially unlimited losses. Naked calls and puts are typically permitted only for experienced investors with high risk tolerance and margin approval.

What is an example of an uncovered option?

A common example of an uncovered, or naked, option is a call option sold by an investor who doesn’t own the underlying stock. If the stock price rises significantly and the option is exercised, the seller must buy shares at market price to deliver them, which can result in substantial losses.

Why are naked options risky?

Naked options are risky because the seller has no protection if the market moves against them. Without owning the underlying asset or an offsetting position, losses can be substantial or even technically unlimited in the case of naked call options if the stock price rises sharply.

Can anyone trade naked options?

No, not all investors can trade naked options. Many brokerages restrict this strategy to high-net-worth individuals or experienced traders who meet strict margin and approval requirements, due to the significant risk involved.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-066

Jul

2025

Pros & Cons of the FIRE Movement

By Krystal Etienne | Budgeting & Goals, invest, Preparing for Retirement | Comments Off

Table of Contents

What Is the FIRE Movement?
FIRE vs. Traditional Retirement
Target Age for Early Retirement
Saving Strategies for Retiring Early
Financial Independence Retire Early: Pros and Cons
Investing for FIRE
FAQ

Many people dream of the day that they clock into work for the very last time. In most cases, we imagine that’ll be when we’re in our 60s. But what if you could take the freedom and independence of retirement and experience it 20 or 30 years earlier?

That’s the basic principle of the Financial Independence, Retire Early (FIRE) movement, a community of young people who aim to live a lifestyle that allows them to retire in their 50s, 40s, or even 30s rather than their 60s or 70s.

While it may sound like the perfect life hack, attempting to live out this dream comes with some serious challenges. Read on to learn more about the FIRE movement and some techniques followers have used to help achieve their goal of early retirement. That can help you determine whether any of their savings strategies might be right for you.

Key Points

• FIRE stands for Financial Independence, Retire Early, with proponents aiming to retire earlier than the traditional time frame of 65 to 70 years-old.

• The movement originated from the book Your Money or Your Life in 1992, and gained traction in the 2010s.

• Achieving FIRE may require saving 50% to 75% of income and living frugally.

• Benefits include increased time flexibility, reduced financial stress, and a more passion-driven life.

• Drawbacks involve unpredictability, potential boredom, and challenges in re-entering the workforce.

What Is the FIRE Movement?

FIRE stands for “financial independence, retire early,” and it’s a movement where followers attempt to gain enough wealth to retire far earlier than the traditional timeline would allow.

The movement traces its roots to a 1992 book called Your Money or Your Life by Vicki Robin and Joe Dominguez. FIRE started to gain a lot of traction, particularly among millennials, in the 2010s.

In order to achieve retirement at such a young age, FIRE proponents may devote 50% to 75% of their income to savings. They also use dividend-paying investments in order to create passive income sources they can use to support themselves throughout their retired lives.

Of course, accumulating the amount of wealth needed to live for six decades or more without working is a considerable feat, and not everyone who attempts FIRE succeeds.

FIRE vs. Traditional Retirement

FIRE and traditional retirement both aim to help people figure out when they can retire, but there are major differences between the two.

Retiring Early

Given the challenge many people have of saving enough for retirement even by age 65 or 70, what kinds of lengths do the advocates of the FIRE movement go to?

Some early retirees blog about their experiences and offer tips to help others follow in their footsteps. For instance, Mr. Money Mustache is a prominent figure in the FIRE community, and advocates achieving financial freedom through, in his words, “badassity.”

His specific perspective includes reshaping simple but expensive habits, such as eliminating smoking cigarettes or drinking alcohol, and limiting dining out.

Of course, the basic premise of making financial freedom a reality is simple in theory: spend (much) less money than you make in order to accumulate a substantial balance of savings.

Investing those savings can potentially make the process more attainable by providing, in the best-case scenario, an ongoing passive income stream. However, many people who achieve FIRE are able to do so in part because of generational wealth or special circumstances that aren’t guaranteed.

For instance, Mr. Money Mustache and his wife both studied engineering and computer science and had “standard tech-industry cubicle jobs,” which tend to pay pretty well — and require educational and professional opportunities not all people can access.

In almost all cases, pursuing retirement with the FIRE movement requires a lifestyle that could best be described as basic, foregoing common social and leisure enjoyments like restaurant dining and travel.

Target Age for Early Retirement

Early retirement means different things to different people. While some individuals may consider age 55 to be an early retirement, many FIRE proponents aspire to retire in their 40s or even in their 30s, if possible.

According to a SoFi 2024 Retirement Survey, 12% of respondents say their target retirement age is 49 or younger. Of that group, 35% are using FIRE strategies to reach their goal, making it one of the top methods.

Strategies to Retire Early
Source: SoFi Retirement Survey, April 2024

Saving Strategies for Retiring Early

Retiring early can involve making some serious adjustments to an individual’s current lifestyle. People who follow the FIRE movement generally try to put 50% to 75% of their income in savings. That can be challenging because once they pay their bills, there may not be much leftover for things like going to the movies or having dinner out.

As noted above, among the SoFi survey respondents, roughly one-third (35%) say they are using FIRE strategies.

Traditional Retirement

Most working people expect to retire sometime around the age of 65 or so. For those born in 1960 or later, Social Security benefits can begin at age 62, but those benefits will be significantly less than they would be if an individual waited until 67, their full retirement age, to collect them.

People saving for traditional retirement typically save much of their retirement funds in tax-incentivized retirement accounts, like 401(k)s and traditional IRAs, which carry age-related restrictions. For example, 401(k)s generally can’t be accessed before age 59½ without incurring a penalty.

But remember that even a traditional retirement timeline can be difficult for many savers. For example, the SoFi survey found that just 17% of respondents are saving 15% of their income for retirement, the amount many financial professionals recommend.

Online calculators and budgeting tools can help you determine when you can retire, and they are customizable to your exact retirement goals and specifications.

Financial Independence Retire Early: Pros and Cons

Although financial independence and early retirement are undoubtedly appealing, getting there isn’t all sunshine and rainbows. There are both strong benefits and drawbacks to this financial approach that individuals should weigh before undertaking the FIRE strategy.

Pros of the FIRE Approach

Benefits of the FIRE lifestyle include:

• Having more flexibility with your time. Those who retire at, say 45, as opposed to 65 or 70, have more of their lifetime to spend pursuing and enjoying the activities they choose.

• Building a meaningful, passion-filled life. Retiring early can be immensely freeing, allowing someone to shirk the so-called golden handcuffs of a job or career. When earning money isn’t the primary energy expenditure, more opportunities to follow one’s true calling can be taken.

• Learning to live below one’s means. “Lifestyle inflation” can be a problem among many working-age people who find themselves spending more money as they earn more income. The savings strategies necessary to achieve early retirement and financial independence require its advocates to learn to live frugally, or follow a minimalist lifestyle, which can help them save more money in the long run — even if they don’t end up actually retiring early.

• Less stress. Money is one of the leading stressors for many Americans. Gaining enough wealth to live comfortably without working could wipe out a major cause of anxiety, which could lead to a more enjoyable, and healthier, life.

Cons of the FIRE Approach

Drawbacks of the FIRE lifestyle include:

• Unpredictability of the future. Although many people seeking early retirement thoroughly map out their financial plans, the future is unpredictable. Social programs and tax structures, which may figure into future budgeting, can change unexpectedly, and life can also throw wrenches into the plan. For instance, a major illness or an unexpected life event could wreak havoc on even the best-laid plans for financial independence.

• Some find retirement boring. While never having to go to work again might sound heavenly to those on the job, some people who do achieve financial security and independence and take early retirement, struggle with filling their free time. Without a career or specific non-career goals, the years without work can feel unsatisfying.

• Fewer professional opportunities. If someone achieves FIRE and then discovers it’s not right for them — or they must re-enter the workforce due to an extenuating circumstance — they may find reintegration challenging. Without a history of continuous job experience, one’s skill set may not match the needs of the economy, and job searching, even in the best of circumstances, may be difficult.

• FIRE is hard! Even the most dedicated advocates of the financial independence and early retirement approach acknowledge that the lifestyle can be difficult — both in the extreme savings strategies necessary to achieve it and in the ways it changes day-to-day life. For instance, extroverts might find it difficult to forgo social activities like eating out or traveling with friends. Others may find it challenging to create a sense of personal identity that doesn’t revolve around a career.

Investing for FIRE

Investing allows FIRE advocates — and others — to earn income in two important ways: dividends and market appreciation.

Dividends

Shareholders earn dividend income when companies have excess profits. Dividends are generally offered on a quarterly basis, and if you hold shares of a stock you could earn them.

However, because dividend payments depend on company performance, they’re not guaranteed. Those relying on them to live should have other income sources (including substantial savings accounts) as a back up income stream.

Market Appreciation

Investors can also earn potential profits through market appreciation when they sell stocks and other assets for a higher price than what they initially paid for them.

Even for those who seek retirement at a traditional pace, stock investing is a common strategy to create the kind of compound growth over time that can build a substantial nest egg. There are many accounts built specifically for retirement investing, such as 401(k)s, IRAs, and 403(b) plans.

However, these accounts carry age-related restrictions and contribution limits which means that those interested in pursuing retirement on a FIRE timeline will need to explore additional types of accounts and saving and investing options.

For example, brokerage accounts allow investors to access their funds at any point — and to customize the way they allocate their assets to help support growth goals.

The Takeaway

Whether you’re hoping to retire in a traditional fashion, shorten your retirement timeline, or you’re simply looking to increase your wealth to achieve shorter-term financial goals, like buying a new car, investing can be an effective way to reach your objectives.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What does “FIRE” stand for?

FIRE is an acronym that stands for “financially independent, retire early.” It’s a movement where followers try to save enough to retire much earlier than the traditional age, such as in their 30s and 40s rather than their 60s.

How many people are using FIRE strategies to save for retirement?

According to the SoFi 2024 Retirement Survey, 35% of those who wish to retire by age 50 are utilizing FIRE strategies to save for retirement.

What are some drawbacks of FIRE strategies?

Potential drawbacks of using FIRE strategies include the fact that saving so much and spending so little is very challenging, retirement may not be what many people envision once they achieve it, and the future is unpredictable, and their plans may change.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q325-004

Jul

2025

Comparing SPAC Units With Different Warrant Compositions

SPAC Warrants and Warrant Compositions

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Table of Contents

How to Evaluate SPACs
SPAC Warrants 101
Can You Trade SPAC Warrants?
Converting SPAC Units Into Shares
SPAC Warrants: Merger vs No Merger
Examples of SPAC Investments With Different Warrant Compositions
Finding SPAC Warrants
Using SPAC Warrants
FAQ

An investor in a SPAC, or special purpose acquisition company, typically buys something called units, which are like packages that include shares of common stock as well as warrants (or fractions of warrants).

SPAC warrants are similar to options in that these contracts give investors the right to purchase shares of common stock, for a certain price (the strike price), by a certain date in the future, when the warrant expires and can no longer be redeemed. Fractions of warrants must be combined in order to purchase the appropriate number of shares.

The terms of different SPAC warrants can vary widely, though, and have a direct bearing on how many shares of stock the investor can purchase, during what period, and the circumstances whereby a SPAC can redeem the warrants. Investors interested in investing in SPACs after the IPO need to verify whether they are buying common stock shares, warrants, or units.

Key Points

• A SPAC is a shell company that raises capital in order to go public, and then seeks a private company to acquire or merge with, thereby taking that company public as well.

• Investors in a SPAC purchase “units,” which include common stock shares as well as warrants.

• SPAC warrants are contracts that allow investors to buy more common stock shares as long as certain terms are met in terms of price, timing, and so on.

• The terms of one SPAC warrant can differ from another, so investors have to understand the conditions so they make the best choices.

• A SPAC can decide to redeem outstanding warrants, particularly if the stock is trading above a certain price. If investors miss the redemption period, their warrants can expire worthless.

How to Evaluate SPACs

When evaluating whether or not to invest in a SPAC IPO, potential investors often consider:

• Who is the sponsor?

• Have they launched other SPACs before?

• Have those SPACs found targets and completed a successful company merger?

• Do the board members have the experience and track records that you would expect to evaluate investment opportunities?

However, it’s just as important for investors to understand the quantitative aspect of a SPAC deal. All SPACs are typically priced at $10 per unit, but the makeup of the units can vary.

Warrants and their inclusion, or absence, in a SPAC unit can affect investor profits. A SPAC unit can have the following compositions:

• One share + one full warrant

• One share + no warrant

• One share + partial warrant (e.g., ⅓ or ½ )

SPAC Warrants 101

SPAC warrants are similar to contracts known as stock warrants.

These contracts give stock warrant holders the right, but not the obligation, to buy stocks online or through a brokerage, at a later date. But unlike traditional options, stock warrants are offered by the company itself as a way to raise capital.

Similar to stock warrants (and options), SPAC warrants also have an expiration date, so investors must pay attention if they want to exercise them. Another nuance worth noting is that when warrants get exercised, the action can be dilutive to shareholders, since a flood of new shares can enter the market, impacting the price when investors buy shares.

SPAC Warrant Details

But warrants have the potential to be lucrative for these early SPAC investors. This is because, as explained, essentially they’re paying $10 for one share, plus the right to buy additional shares at a set price — what’s known as the strike or exercise price.

Also, even if an early investor decides to redeem their shares in the SPAC before a merger is completed, they get to keep the warrants that were a part of the SPAC units.

If the company doesn’t want to issue additional shares, they may not include warrants in their SPAC units. Market conditions may also dictate whether warrants are unnecessary.

Remember: Warrants are meant to entice investors to put in their money early. If demand for the SPAC is strong enough, the company may not feel the need to issue units with warrants.

Can You Trade SPAC Warrants?

Generally, an investor can only trade stock warrants if there is a whole number of warrants. If partial warrants are issued, that fraction may not be sold. In order to sell, the investor would need to purchase additional units in order to make up a whole warrant.

Here’s an example: Let’s say a SPAC unit consists of one share and a partial warrant that’s one-third of a warrant. This means that to own a whole warrant and purchase a share of stock, the investor would need to purchase two more units.

If they were to do this, then they could trade the whole warrant, either on a stock exchange or in the over-the-counter market.

Converting SPAC Units Into Shares

Another thing likely on investors’ minds: How do SPAC units actually get converted into shares? Depending on the specifics of the SPAC, the process happens more or less automatically, and there’s no action needed on the part of the investor. That’s assuming that the SPAC does end up merging and going public.

Converting SPAC warrants into shares is a bit more involved, however. In the case an investor wants to convert SPAC warrants to shares, investors should get in touch with their broker to discuss their options.

SPAC Warrants: Merger vs No Merger

SPAC warrants can be traded after a merger — for years, in some cases. That’s somewhat theoretical, though, as there may be redemption clauses in contracts that require investors to redeem their warrants under certain conditions. It really all depends on the specific SPAC, and the guidelines outlined within the contracts governing them.

If there is no merger, however, SPACs typically liquidate the funds they raised. Investors get their money back, and warrants are more or less worthless.

Examples of SPAC Investments With Different Warrant Compositions

It’s important for investors to examine the deal structure of each SPAC closely, and investors can do this by reading the initial public offering (IPO) prospectus.

The information around the composition of the shares or units being offered is usually on one of the first few pages, but reading the entire prospectus is essential for investors to make the right investment decision for them.

In general, here are some other pertinent pieces of information relating to warrants that potential investors should be looking for when reading through the prospectus:

• The strike price

• Exercise window

• Expiration date

• Whether there are any specific conditions that can trigger an early redemption

Investors should also inspect the exact composition of a SPAC unit. Does it offer one whole warrant, no warrant, one-quarter, one-third, or one-half?

The strike price, or exercise price, of SPAC warrants is often $11.50 a share. Investors sometimes have until five years after the merger before the warrant expires. However, the terms of different SPAC deals can vary. It’s possible that the deal terms call for an early redemption period, and if investors miss exercising their contracts in that period, the warrants could expire worthless.

SPAC Unit With Whole Warrant

Let’s say an investor buys 1,000 units of a SPAC. In this case, each SPAC unit is composed of one whole share, plus one whole warrant. That means the investor now owns 1,000 shares of the merged company stock, plus 1,000 warrants to buy shares of stock at $11.50 each.

If the SPAC completes its merger or acquisition and the shares jump to $20, the investor can buy additional shares for just $11.50 each. This would be a significant discount compared to where the existing shares are trading.

Here’s a hypothetical step-by-step example of how an investor could potentially profit from exercising their whole warrants:

1. Investor buys 1,000 units at $10 each, spending a total of $10,000.

2. SPAC shares jump to $20 each.

3. Investor exercises warrants, purchasing 1,000 shares for $11.50 each and spending an additional total of $11,500.

4. Investor sells all 2,000 shares immediately for the market price of $20 each, for $40,000 total.

5. Our investor pockets the difference (so $40,000 – $21,500 = $18,500).

SPAC Unit With No Warrant

Now, imagine that same investor bought into a SPAC where the units had no warrants. That means, while the investor’s 1,000 shares doubled in value, they didn’t have the right to buy an additional 1,000 shares. Here’s an example of this scenario:

1. Investor buys 1,000 units at $10 each, spending a total of $10,000.

2. SPAC shares jump to $20 each.

3. Investor sells the 1,000 shares immediately for $20 each, for $20,000 total.

4. Our investor pockets the difference (so $20,000 – $10,000 = $10,000).

SPAC Unit With Partial Warrant

Let’s say our hypothetical SPAC has units with partial warrants. So in each unit, there’s one share attached to a ½ warrant. Here’s how this would look:

1. Investor buys 1,000 units at $10 each, spending a total of $10,000.

2. SPAC shares jump to $20 each.

3. Investor exercises warrants. Every two warrants converts to one share of stock, so the investor buys 500 shares for $11.50 each, spending $5,750.

4. Investor sells all 1,500 shares immediately for $20 each, for $30,000 total.

5. Our investor pockets the difference (so $30,000 – $15,750 = $14,250).

Here’s a hypothetical table that lays out different profit scenarios depending on the warrant composition, assuming that an investor has bought 1,000 units, that the exercise price of the warrants is $11.50, and the underlying shares hit $20 each.

Warrants Attached to Each SPAC Unit	1 Whole Warrant	½ Warrant	⅓ Warrant	¼ Warrant	No Warrant
Units Purchased	1,000	1,000	1,000	1,000	1,000
Number of Shares That Can Be Bought With Warrants in SPAC Unit	1,000	500	333	250	0
Cost of Exercising Warrants at $11.50 Strike Price	$11,500	$5,750	$3,829.50	$2,875	$0
Proceeds From Selling Shares Acquired Through Warrant Exercise	$20,000	$10,000	$6,660	$5,000	$0
Net Proceeds from Selling Shares Exercised From Warrants	$8,500	$4,250	$2,830.50	$2,125	$0
Net Proceeds From Selling All Shares	$18,500	$14,250	$12,830.50	$12,125	$10,000

Finding SPAC Warrants

Since SPAC warrants trade like shares of stocks, and are listed by many brokerages, investors can often look them up and execute a trade like they would many other securities.

One tricky thing to watch out for, though, is that SPAC warrants may trade under different ticker symbols on different brokerages or exchanges. So, you’ll want to make sure you’re looking for the SPAC warrant you want before executing a trade.

Using SPAC Warrants

SPAC warrants’ main utility is that they can be traded or executed — meaning they can be converted into shares and, under the right conditions, sold at a profit.

So, for investors, using a SPAC warrant typically comes down to one of the two in an attempt to generate a return. There may be times when a SPAC doesn’t merge and investors get their money back, but the true utility of warrants is that they can be executed or traded.

The Takeaway

With SPAC investments, whether units come with full warrants, no warrants, or partial warrants is a quantitative consideration. All else being equal, SPACs that provide full or partial warrants offer more potential profit than SPACs that offer no warrants.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How do you evaluate SPACs?

Investors can evaluate SPACs by looking at qualitative aspects, including who the sponsors are, their backgrounds, whether the SPAC has found a target, and what types of experiences the board members have.

What is an example of a SPAC unit with a whole warrant?

An example of a SPAC with a whole warrant means that the investor would have one share per unit, plus a warrant to buy an additional share per unit. So if they owned 500 units, they would have 500 shares and warrants for 500 more shares.

What is a partial warrant?

When an investor buys a SPAC unit, it typically includes a share of stock and a warrant or partial warrant to be applied to additional shares, at some point in the future, per the terms of the warrant contract. Partial warrants might include a ½ warrant or a ⅓ warrant. In order to redeem the warrants for a full share of stock, the investor would need to buy more units, in order to combine the partial warrants into a whole warrant that’s worth a full share.

Photo credit: iStock/FatCamera

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-143

Jul

2025

Understanding the Greeks in Options Trading

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Table of Contents

A Quick Look at Options
What Are Option Greeks?
5 Main Options Greeks: Overview
Other Options Terminology to Know
FAQ

The “Greeks” in options trading — including delta, gamma, theta, vega, and rho — are metrics that help traders gauge the pricing and risk of a given options contract.

Because options are derivatives, the value of each contract — the premium — depends on a complex interaction of different factors, including time to expiration, price volatility, and changes in the value of the underlying security. Each of these factors is represented by a Greek letter.

While there are several Greeks, delta, gamma, theta, vega, and rho are among the main Greeks in options trading.

Options Greeks may sound like a foreign language, but they are often essential tools for assessing whether a certain position may be profitable, since it can be difficult to understand the true value of an option.

Key Points

• Options Greeks are tools that help investors estimate how different market forces may affect the value of an options contract.

• Delta measures how much an option’s price might change in response to a $1 move in the underlying asset.

• Gamma tracks how delta itself may change as the stock price shifts, helping investors understand rate-of-change risk.

• Theta reflects time decay, showing how much value an option could lose each day as it nears expiration.

• Vega and rho measure sensitivity to implied volatility and interest rate changes, respectively, both of which can influence an option’s premium.

A Quick Look at Options

Options contracts are a type of investment that can typically be bought and sold much like stocks and bonds. But options are derivatives — that is, they do not represent ownership of the underlying asset. Instead, their value (or lack thereof) derives from another underlying asset, typically a specific stock.

Traders generally conduct different types of options trading when they anticipate that stock prices may go up (a call) or down (a put). They also use options to hedge or offset potential investment risks on other assets in their portfolio.

In a nutshell, options are typically purchased through an investment broker. Those options give purchasers the right, but not the obligation, to buy or sell a security at a later date and specific price. Investors can buy an option for a price, called a premium, and then they may choose to buy or sell that option.

So, while an option itself is a derivative of another investment, it may gain or lose value, too. For example, if an investor were to buy a call option on Stock A and the stock price increases, the value of that call option may rise as well.

But the opposite would be true if an investor purchased a put option on Stock A, anticipating that Stock A’s price would go down. While not identical to shorting a stock, buying a put may result in a loss if the stock price rises instead of falls.

What Are Option Greeks?

Options traders use these letters to evaluate their option positions and better understand how changes in market conditions may affect those positions.

In short, the Greeks look at different factors that may influence the price of an option. Calculating the Greeks isn’t an exact science. Traders use a variety of formulas, typically based on mathematical pricing models. Because of that, these measurements are theoretical in nature.

Here’s a look at the most common Greeks used by traders to estimate how options might respond to market changes.

Recommended: Options Trading Terms You Need to Know

Delta

Delta measures how much an option’s price may change if the underlying stock’s price changes. It’s usually expressed as a decimal, ranging from 0.00 to 1.00 for calls and 0.00 to -1.00 for puts.

So, if an option has a delta of 0.50, in theory, that means that the option’s price may move approximately $0.50 for every $1 move in the stock’s price. Another way to think of delta is that it gives an investor an idea of the probability that the option may expire in-the-money. If delta is 0.50, for example, that can equate to a 50% chance that an option will expire in the money — meaning the strike price would be favorable relative to the market price at expiration.

Gamma

The second Greek, gamma, tracks the sensitivity of an option’s delta to changes in the underlying asset’s price. If delta measures how an option’s price changes in relation to a stock’s price, then gamma measures how delta itself may change in response to changes in the stock’s price.

Think of an option as a car going down the highway. The car’s speed represents delta, and acceleration reflects gamma, as it measures the change in speed. Gamma is also typically expressed as a decimal. If delta increases from 0.50 to 0.60, then gamma would be 0.10.

Theta

Theta measures an option’s sensitivity to time. It gives investors a sense of how much an option’s price may decline as it approaches expiration.

Similar to the “car on a highway” analogy, it may be useful to think of an option as an ice cube on a countertop. The ice cube melts — representing the diminishing time value — and that melting may accelerate as expiration approaches.

Theta is typically expressed as a negative decimal, representing the estimated daily dollar loss per share and represents how much value an option may lose each day as it approaches expiration.

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Vega

Finally, vega in options is a measure of an option’s sensitivity to implied volatility.

Markets are volatile, and securities (and their derivatives) are subject to that volatility. Vega measures how sensitive an option’s price is to changes in implied volatility.

Volatility refers to the magnitude and frequency of price fluctuations in a security’s value. Because future volatility is unknown, options pricing reflects market expectations — known as implied volatility. Changes in stock volatility can affect an option’s value, particularly when implied volatility deviates from expectations. Vega does not measure volatility itself, but an option’s sensitivity to volatility changes.

Vega is expressed as a number, reflecting the estimated dollar change in an option’s price for each 1% change in implied volatility.

Rho

Rho measures an option’s sensitivity to changes in interest rates. Specifically, it estimates how much an option’s price may move in response to a one percentage-point change in the risk free-interest rate.

The value of rho is typically small and more impactful for longer-dated options. For example, a rho of 0.05 suggests the option’s premium may increase by $0.05 if interest rates rise by 1%.

Although rho is less influential than other Greeks in most short-term trading strategies, it becomes more relevant when interest rates are rising or when a trader holds options with longer expirations.

Finally, user-friendly options trading is here.*

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OCC Options Disclosure Document.

5 Main Options Greeks: Overview

In summary, here’s how an investor may use this data when analyzing the risk and reward of an options contract.

Name	Symbol	Definition	How investors might think about it
Delta	∆	Measures the sensitivity of an option’s price to a change in the price of the underlying security.	For example, if the delta is 0.50, that suggests the option’s price may move approximately $0.50 for every $1 move in the stock’s price. It can also indicate a 50% chance that an option may be in the money at the moment. This probability may change over time and isn’t a guarantee.
Gamma	γ	Measures the rate of change for delta. It tells you how quickly delta will change as the stock price changes.	Think of an option as a car on the highway: speed reflects delta while acceleration represents gamma, which is typically expressed as a decimal. A stock trading at $10 with a delta of 0.40 and gamma of 0.10 means that a $1.00 increase in the stock’s price may adjust delta by 0.10, increasing it to 0.50. A $1 decrease may lower delta to 0.30, impacting how quickly the option’s value will increase or decrease with further price movements.
Theta	θ	Measures the sensitivity of an option’s price to the passage of time.	An option’s theta is like an ice cube melting on a countertop – its time value diminishes as expiration approaches, and the melting becomes more rapid over time. This is expressed as a negative decimal that reflects dollar loss. For example, a theta of -1 means the option may lose $1 per share, per day, until it reaches the expiration date.
Vega	ν	The change in an option’s value as implied volatility goes up or down by 1 percent.	Vega rises with higher implied volatility, which reflects greater market uncertainty. Lower implied volatility typically corresponds with smaller price movements.
Rho	ρ	Measures the sensitivity of an option’s price to a change in interest rates.	If an option has a rho of 1.0, a 1% increase in interest rates may result in a 1% increase in the option’s value. Options most sensitive to interest rate changes are typically those that are at-the-money or have the longest time to expiration.

Other Options Terminology to Know

The specific option traded (a call versus a put, for example) and the underlying stock’s performance determine whether an investor’s position is profitable. That brings us to a few other key options terms that are important to know:

In the Money

A call option is “in the money” when the strike price is below the market price. A put option is “in the money” when the strike price is above the market price.

Out of the Money

A call option is “out of the money” when the strike price is above the market price. A put option is “out of the money” when the strike price is below the market price.

At the Money

The option’s strike price is the same as the stock’s market price.

The Takeaway

There’s no getting around it: Options and the Greeks can be complex and are generally not appropriate for newer investors. But experienced traders, or those willing to spend time learning how options work, may find them to be a valuable tool when building an investment strategy.

Explore SoFi’s user-friendly options trading platform.

FAQ

What are the Greeks in options trading?

The Greeks are a set of theoretical risk measures used to estimate how an option’s price may change based on variables like time, volatility, and the underlying asset’s price. The most commonly referenced Greeks are delta, gamma, theta, vega, and rho.

What is the Rule of 16 in options?

The Rule of 16 is shorthand for estimating expected daily price movement. It’s based on the idea that implied volatility reflects annualized moves. By dividing implied volatility by 16, traders can estimate the expected one-day standard deviation for a stock.

How do you use gamma in options trading?

Gamma helps traders get a sense of how stable an option’s delta is. A higher gamma suggests delta could change rapidly, especially near expiration or when an option is at the money. Monitoring gamma can help manage risk when holding positions that are sensitive to price swings.

Which Greek is most important in options trading?

The most closely watched Greek is delta, which estimates how much an option’s price may change when the underlying asset moves by $1. Delta also gives a rough idea of an option’s probability of expiring in the money. That said, the “most important” Greek depends on the strategy: traders focused on time decay may prioritize theta, while volatility traders may focus more on vega.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-068