Dec
18
2025
SEP IRA Rules and Limits to Know
A SEP IRA is a type of traditional IRA that allows self-employed individuals and small business owners to save up to $57,000 annually for retirement.
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Dec
18
2025
403(b) vs Roth IRA: Key Differences and How to Choose
Table of Contents
What’s the Difference Between a 403(b) and a Roth IRA?
A 403(b) and a Roth IRA account are both tax-advantaged retirement plans, but they are quite different — especially regarding the amount you can contribute annually, and the tax implications for each.
Generally speaking, a 403(b) allows you to save more, and your taxable income is reduced by the amount you contribute to the plan (potentially lowering your tax bill). A Roth IRA has much lower contribution limits, but because you’re saving after-tax money, it grows tax free — and you don’t pay taxes on the withdrawals.
In some cases, you may not need to choose between a Roth IRA vs. a 403(b) — the best choice may be to contribute to both types of accounts. In order to decide, it’s important to consider how these accounts are structured and what the rules are for each.
Comparing How a 403(b) and a Roth IRA Work
When it comes to a 403(b) vs Roth IRA, the two are very different.
A 403(b) account is quite similar to a 401(k), as both are tax-deferred types of retirement plans and have similar contribution limits. A Roth IRA, though, follows a very different set of rules.
403(b) Overview
Similar to a 401(k), a 403(b) retirement plan is a tax-deferred account sponsored by an individual’s employer. An individual may contribute a portion of their salary and also receive matching contributions from their employer.
An employee’s contributions are deducted — this is known as a salary reduction contribution and deposited in the 403(b) pre-tax, where they grow tax-free, until retirement (which is why these accounts are called “tax deferred”). Individuals then withdraw the funds, and pay ordinary income tax at their current rate.
Although 403(b) accounts share some features with 401(k)s, there are some distinctions.
Eligibility
The main difference between 403(b) and 401(k) accounts is that 401(k)s are offered by for-profit businesses and 403(b)s are only available to employees of:
• Public schools, including public colleges and universities
• Churches or associations of churches
• Tax-exempt 501(c)(3) charitable organizations
Early Withdrawals
Typically, individuals face a 10% penalty if they withdraw their money before age 59 ½. Exceptions apply in some circumstances. Be sure to consult with your plan sponsor about the rules.
Contribution Limits and Rules
There are also some different contribution rules for 403(b) accounts. The cap for a 403(b) is the same as it is for a 401(k): $23,500 in 2025 and $24,500 in 2026. And if you’re 50 or older you can also make an additional catch-up contribution of up to $7,500 in 2025 and $8,000 in 2026. (In 2025 and 2026, those aged 60 to 63 can contribute an extra $11,250, instead of $7,500 in 2025 and $8,000 in 2026.)
In the case of a 403(b), though, if it’s permitted by the 403(b) plan, participants with at least 15 years of service with their employer can make another catch-up contribution above the annual limit, as long as it’s the lesser of the following options:
• $15,000, reduced by the amount of employee contributions made in prior years because of this rule
• $5,000, times the number of years of service, minus the employee’s total contributions from previous years
• $3,000
The wrinkle here is that if you’re over 50, and you have at least 15 years of service, you must do the 15-year catch-up contribution first, before you can take advantage of the 50-plus catch-up contribution of up to $7,500 in 2025 and $8,000 in 2026.
Roth IRA Overview
Roth IRAs are different from tax-deferred accounts like 403(b)s, 401(k)s, and other types of retirement accounts. With all types of Roth accounts — including a Roth 401(k) and a Roth 403(b) — you contribute after-tax money. And when you withdraw the money in retirement, it’s tax free.
Eligibility
Unlike employer-sponsored retirement plans, Roth IRAs fall under the IRS category of “Individual Retirement Arrangements,” and thus are set up and managed by the individual. Thus, anyone with earned income can open a Roth IRA through a bank, brokerage account, or other financial institution that offers them.
Contribution Limits and Rules
Your ability to contribute to a Roth, however, is limited by your income level.
• For 2025, if you’re married filing jointly, you can contribute the maximum to a Roth if your modified adjusted gross income (MAGI) is less than $236,000. If your income is between $236,000 and $246,000 you can contribute a reduced amount.
• For single filers in 2025, your income must be less than $150,000 to contribute the maximum to a Roth, with reduced contributions up to $165,000.
• For 2026, if you’re married filing jointly, you can contribute the maximum to a Roth if your modified adjusted gross income (MAGI) is less than $242,000. If your income is between $242,000 and $252,000 you can contribute a reduced amount.
• For single filers in 2026, your income must be less than $153,000 to contribute the maximum to a Roth, with reduced contributions up to $168,000.
Roth 403(b) vs Roth IRA: Are They the Same?
No. A Roth 403(b) does adhere to the familiar Roth structure — the individual makes after-tax contributions, and withdraws their money tax free in retirement — but otherwise these accounts are similar to regular 403(b)s.
• The annual contribution limits are the same: $23,500 with a catch-up contribution of $7,500 for those 50 and older for 2025; $24,500 with a catch-up contribution of $8,000 for those 50 and older for 2026 ($11,250 instead of $7,500, in 2025 and 2026, for those aged 60 to 63).
• There are no income limits for Roth 403(b) accounts.
Also, a Roth 403(b) is like a Roth 401(k) in that both these accounts are subject to required minimum distribution rules (RMDs), whereas a regular Roth IRA does not have RMDs.
One possible workaround: You may be able to rollover a Roth 403(b)/401(k) to a Roth IRA — similar to the process of rolling over a regular 401(k) to a traditional IRA when you leave your job or retire.
That way, your nest egg wouldn’t be subject to 401(k) RMD rules.
Finally, another similarity between Roth 403(b) and 401(k) accounts: Even though the money you deposit is after tax, any employer matching contributions are not; they’re typically made on a pre-tax basis. So, you must pay taxes on those matching contributions and earnings when taking retirement withdrawals. (It sounds like a headache, but your employer deposits those contributions in a separate account, so it’s relatively straightforward to know which withdrawals are tax free and which require you to pay taxes.)
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Which Is Better, a 403(b) or Roth IRA?
It’s not a matter of which is “better” — as discussed above, the accounts are quite different. Deciding which one to use, or whether to combine both as part of your plan, boils down to your tax and withdrawal strategies for your retirement.
To make an informed decision about which retirement plan is right for you, it can be helpful to conduct a side-by-side comparison of both plans. This chart breaks down some of the main differences, giving you a better understanding of these types of retirement plans, so that you can weigh the pros and cons of a Roth IRA vs. 403(b).
| 403(b) | Roth IRA | |
|---|---|---|
| Who can participate? | Employees of the following types of organizations:
• Public school systems, if involved in day-to-day operations • Public schools operated by Indian tribal governments • Cooperative hospitals and • Civilian employees of the Uniformed Services University of the Health Sciences • Certain ministers and chaplains • Tax-exempt charities established under IRC Section 501(c)(3) |
Individuals earning less than the following amounts:
• Single filers earning less than $150,000 for 2025 (those earning $150,000 or more but less than $165,000 may contribute a reduced amount) • Married joint filers earning less than $236,000 for 2025 (those earning $236,000 or more but less than $246,000 may contribute a reduced amount) • Single filers earning less than $153,000 for 2026 (those earning $153,000 or more but less than $168,000 may contribute a reduced amount) • Married joint filers earning less than $242,000 for 2026 (those earning $242,000 or more but less than $252,000 may contribute a reduced amount) |
| Are contributions tax deductible? | Yes | No |
| Are qualified distributions taxed? | Yes | No (if not qualified, distribution may be taxable in part) |
| Annual individual contribution limit | $23,500 for 2025 (plus catch-up contributions of $7,500 for those 50 and older; $11,250 instead of $7,500 for those aged 60 to 63)
$24,500 for 2026 (plus catch-up contributions up to $8,000 for those age 50 and older; $11,250 instead of $8,000 for those aged 60 to 63) |
$7,000 for 2025 (individuals 50 and older may contribute $8,000)
$7,500 for 2026 (individuals 50 and older may contribute $8,600) |
| Are early withdrawals allowed? | Depends on individual plan terms and may be subject to a 10% penalty | Yes, though account earnings may be subject to a 10% penalty if funds are withdrawn before account owner is 59 ½ |
| Plan administered by | Employer | The individual’s chosen financial institution |
| Investment options | Employee chooses based on investments available through the plan | Up to the individual, though certain types of investments (collectibles, life insurance) are prohibited |
| Fees | Varies depending on plan terms and investments | Varies depending on financial institution and investments |
| Portability | As with other employee-sponsored plans, individuals must roll their account into another fund or cash out when switching employers | Yes |
| Subject to RMD rules | Yes | No |
Pros and Cons of a 403(b) and a Roth IRA
There are positives to both a 403(b) and a Roth IRA — and because it’s possible for qualified individuals to open a Roth IRA and a 403(b), some people may decide that their best strategy is to use both. Here’s a side-by-side comparison of a 403(b) vs. a Roth IRA:
| 403(b) | Roth IRA | |
|---|---|---|
| Pros |
• Contributions are automatically deducted from your paycheck • Earning less during retirement may mean an individual pays less in taxes • Employer may offer matching contributions • Higher annual contribution limit than a Roth IRA |
• More investment options to choose from • Withdrawal of contributions are not taxed; withdrawal of earnings are not taxed under certain conditions and/or after age 59 ½ • Account belongs to the owner |
| Cons |
• May have limited investment options • May charge high fees • There may be a 10% penalty on funds withdrawn before age 59 ½ |
• Has an income limit • Maximum contribution amount is low • Contributions aren’t tax deductible |
Pros of 403(b)
• Contributions are automatically deducted by an employer from the individual’s paycheck, which can make it easier to save.
• If an individual earns less money annually in retirement than during their working years, deferring taxes may mean they ultimately pay less in taxes.
• Some employers offer matching contributions, meaning for every dollar an employee contributes, the employer may match some or all of it, up to a certain percentage.
• Higher annual contribution limit than a Roth IRA.
Pros of Roth IRAs
• Individuals can invest with any financial institution and thus will likely have many more investment options when opening up their Roth IRA.
• Withdrawal of contributions are not taxed; withdrawal of earnings are not taxed under certain conditions and/or after age 59 ½.
• Account belongs to the owner and is not affected if the individual changes jobs.
There are also some disadvantages to both types of accounts, however.
💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA online, but you typically pay investment costs for the securities in your portfolio.
Cons of 403(b)s
• There are limited investment options with 403(b)s.
• Some 403(b) plans charge high fees.
• Individuals typically pay a 10% penalty on funds withdrawn before age 59 ½. However, there may be some exceptions under the rule of 55 for retirement.
Cons of Roth IRAs
• There’s an income limit to a Roth IRA, as discussed above.
• The maximum contribution amount is fairly low.
• Contributions are not tax deductible.
Choosing Between a Roth IRA and 403(b)
When considering whether to fund a 403(b) account or a Roth IRA, there’s no right choice, per se — the correct answer boils down to which approach works for you. You might prefer the automatic payroll deductions, the ability to save more, and, if it applies, the employer match of a 403(b).
Or you might gravitate toward the more independent setup of your own Roth IRA, where you have a wider array of investment options and greater flexibility around withdrawals (Roth contributions can be withdrawn at any time, although earnings can’t).
Or it might come down to your tax strategy: It may be more important for you to save in a 403(b), and reduce your taxable income in the present. Conversely, you may want to contribute to a Roth IRA, despite the lower contribution limit, because withdrawals are tax free in retirement.
Really, though, it’s possible to have the best of both worlds by investing in both types of accounts, as long as you don’t exceed the annual contribution limits.
Investing With SoFi
Because 403(b)s and Roth IRAs are complementary in some ways (one being tax-deferred, the other not), it’s possible to fund both a 403(b) and a Roth IRA.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
Which is better: a 403(b) or a Roth IRA?
Neither plan is necessarily better. A 403(b) and a Roth IRA are very different types of accounts. A 403(b) has automatic payroll deductions, the possibility of an employer match, and your contributions are tax deductible. A Roth IRA gives you more control, a greater choice of investment options, and the ability to withdraw contributions (but not earnings) now, plus tax free withdrawals in retirement. It can actually be beneficial to have both types of accounts, as long as you don’t exceed the annual contribution limits.
Should you open a Roth IRA if you have a 403(b)?
You can open a Roth IRA if you have a 403(b). In fact it may make sense to have both, since each plan has different advantages. You may get an employer match with a 403(b), for instance, and your contributions are tax deductible. A Roth IRA gives you more investment options to choose from and tax-free withdrawals in retirement. In the end, it really depends on your personal financial situation and preference. Be sure to weigh all the pros and cons of each plan.
When should you convert your 403(b) to a Roth IRA?
If you are leaving your job or you’re at least 59 ½ years old, you may want to convert your 403(b) to a Roth IRA to avoid taking the required minimum distributions (RMDs) that come with pre-tax plans starting at age 73. However, because you are moving pre-tax dollars to a post-tax account, you’ll be required to pay taxes on the money. Speak to a financial advisor to determine whether converting to a Roth IRA makes sense for you and ways you may be able to minimize your tax bill.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.
SOIN-Q425-084
Read moreDec
17
2025
How to Know When to Buy a Stock
Table of Contents
Knowing if or when to buy a stock, in an attempt to time the market and generate a potential return, is difficult. While most investors should likely avoid trying to time the market, some experienced investors may use their knowledge and research to determine a timing strategy as part of a larger financial plan.
Trading stocks, of course, is fairly risky, and investors will want to keep that in mind. But with some practice,knowledge, and patience as you fine-tune your plan, you may be able to figure out an effective time to buy stocks for your portfolio.
Key Points
• Timing the stock market is difficult, but understanding when to trade stocks may help you define your trading strategy.
• The best time of day to buy stocks is usually in the morning, shortly after the market opens.
• Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile.
• Historically, April, October, and November have been the best months to buy stocks, while September has shown the worst performance.
• Knowing when to hold or sell stocks depends on personal strategies, research, and confidence in the stock’s potential for growth.
The Best Times to Buy Stocks
As noted, it’s generally not a good idea to try and time the market. But there may be certain times of the day, days of the week, and even months that could be better for buying stocks than others.
The Best Time of Day to Buy Stocks
First and foremost, remember when the stock market is open and when trading is occurring. The New York Stock Exchange and Nasdaq, two of the largest and most active stock exchanges, are open 9:30 a.m. to 4:30 p.m. ET, Monday through Friday.
With that, the best time of the day, in terms of price action, is usually in the morning, in the hours immediately after the market opens up until around 11:30 a.m. ET, or so. That’s generally when most trading happens, leading to the biggest price fluctuations and chances for investors to try to take advantage of them.
The Best Day of the Week to Buy Stocks
If investors are aiming to trade during times of relative volatility, some tend to utilize a trading strategy that aims to crowd their activity near the beginning and end of the week. Monday is probably the best day to trade stocks, since there is likely considerable volatility pent up over the weekend.
That said, Friday can also be a good day to trade, as investors make moves to prepare their portfolios for a couple of days off. The middle of the week tends to be the least volatile.
The Best Month to Buy Stocks
When thinking about the best months to buy stocks, examining historic performance can be helpful. Data showing average monthly returns for the S&P 500 between 1950 and 2023 shows that broadly, November, July, April, and October tend to be the best months to buy. Conversely, September and February have tended to see weaker performances than the other months.
However, you never know what’s going to happen. During 2024, for example, the S&P 500 gained more than 15% between May and October. During 2025, it gained roughly 18% during the same period. Those both buck historical trends.
Again, these “best times to buy stocks” in terms of times, days, and months aren’t guarantees of anything, but are merely based on historical performance. That can be good to keep in mind.
When Should You Buy Stocks
There’s a difference between “can” and “should,” and investors trying to discern when they should buy stocks should really consider their personal preferences, risk tolerance, and investment strategies.
With that in mind, the right time to buy a stock is when an investor has done their research and feels confident that a stock price will rise in the short or long term, and that they’re willing to hold onto it until it does.
It helps to be informed when considering whether to buy stocks, and one way to do that is to learn about the company itself. Interested investors can find many company’s financial reports and earnings reports from government databases or private company research reports.
While it may ultimately be a good idea to buy stocks across different industries in order to diversify, it sometimes helps to start with a business or industry one is familiar with. Knowing about the company can help put the earnings reports into context.
Understanding the value of stocks is often, if not always tied to understanding the business those stocks represent a share in. Is the company a good investment? Does it have sound financials and growth potential?
Here are helpful questions to consider when contemplating buying a stock.
What is the Price Range at Which You’re Willing to Buy?
If an investor has a company in mind, setting a price range at which they would want to buy stock in that company may help inform their decision. One can do this through analysts’ reports and consensus price targets, which average all analyst opinions.
Does the Stock Appear Undervalued?
There are different ways to determine value. The most common valuation metric is a price-earnings ratio (or P/E), which takes the price per share and divides it by earnings per share.
Another way to look at value is a discounted cash flow (DCF) analysis, which takes projected cash values and discounts them back to the present. This ultimately gives an investor a theoretical price target; if the actual price is below the target, then in theory, it’s undervalued and a good buy.
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When Is the Worst Time to Buy Stocks?
Just as there are the purported best times to buy stocks, there are also the worst times to buy stocks, too. Given that investors may be looking for relatively volatile times in the market to buy stocks, relatively calm periods during the trading day may be the worst times to buy. Those hours would be during the middle of the day, perhaps from 11:30 a.m. ET until 3 p.m. ET.
In terms of days of the week? Tuesdays, Wednesdays, and Thursdays may be worse than Mondays or Fridays, barring any market-moving news or other volatility-inducing events. Finally, September, February, and May tend to be the weakest-performing months for the stock market, dating back nearly a century.
How Do You Know When to Hold Stocks?
Knowing when to hold a stock often comes down to one’s investment strategy. With a passive investment approach, investors invest in various stocks with the intention of holding them for an indefinite amount of time. This is also known as a buy and hold investment strategy.
With this type of investing, investors attempt to match a market index such as the S&P 500 and the Dow Jones Industrial Average. So, they select stocks in that market index coinciding with the same percentages in that index.
One benefit of the buy and hold strategy is that the tax rate on long-term capital gains (from stocks that an investor has owned for more than one year) are much lower than that of short-term capital gains.
For many, if not most investors, if you’re going to buy a stock, it may be a good strategy to hold onto it for a while. When an investor buys an undervalued stock, it could take a few years for it to reach its “correct” valuation. And of course, there’s always a risk it will never reach what the investor has determined is the correct valuation.
Not everyone holds onto their stocks for a long time, but there are risks to day trading that may inspire some to become buy-and-holders.
How Do You Know When to Sell a Stock?
Just like how a decision to hold a stock largely depends on an individual investor’s specific strategy, so does the choice as to whether or not to sell.
Some investors rely on a rule of thumb that states that the stock market reaches a high point in May or June and then goes down over the summer until September or October. While that can sometimes be observed in overall market behavior — partially because traders (just like lots of people) go on vacation in the summer and partially because it’s a bit of a self-fulfilling prophecy — it doesn’t mean an individual stock will definitely go down over the summer.
This information, however (and other, similar types of guidance) should be taken with a grain of salt. Again, the choice of whether to sell a stock is up to you, and the research you’ve put into making the decision.
Test your understanding of what you just read.
The Takeaway
Knowing when to buy, sell, and hold stocks can be less confusing when an investor does the research into company health, overall market conditions, and their own financial needs as relates to personal short-term and long-term goals.
One of the easiest ways to buy and sell stocks or manage any investment portfolio is to open an online taxable brokerage account. This is often appealing to investors who want to take more of an active investing approach and buy and sell stocks. Investors would typically pay fees based on the account and the number of trades they make.
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).
FAQ
Is it best to buy stocks when they are down?
The best time to buy a stock is when an investor has done their research and due diligence, and decided that the investment fits their overall strategy. With that in mind, buying a stock when it is down may be a good idea — and better than buying a stock when it is high. But there are always risks to take into consideration.
Should I buy stocks at night?
Investors can engage in after-hours trading, but there are unique risks to doing so, and orders won’t execute until the market opens. Interested investors may want to try after-hours trading to get a feel for it before fully incorporating it into their strategy.
What are the worst months for the stock market?
Based on past performance, the worst months for the stock market tend to be in the early fall and summer. September is usually the worst, but October, June, and August can be bad as well for those hoping to generate returns over the short or medium-term.
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.
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.
¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
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.
S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOIN-Q425-069
Read moreDec
16
2025
How to Analyze Stocks: 4 Ways
Table of Contents
There’s no single way to analyze stocks. But there are many methods that ordinary investors can use to find stocks that are trading at a discount to their underlying value.
The first step in how to analyze a stock before buying is reviewing financial statements. From there, investors can use various methods of analysis to assess investment opportunities and potentially identify worthwhile investments.
Key Points
• There are four common methods of analyzing stocks: technical analysis, qualitative analysis, quantitative analysis, and fundamental analysis.
• Technical analysis focuses on supply and demand patterns in stock charts to make investment decisions.
• Qualitative analysis examines factors like a company’s leadership, product, and industry to evaluate investment opportunities.
• Quantitative analysis uses data and numerical figures to predict price movements in stocks.
• Fundamental analysis looks at a company’s financial health and value to determine if its stock is under or overvalued.
Why Analyzing Stocks Is Important
The process of stock analysis can reveal important information about a company and its history, allowing investors to make more informed decisions about buying or selling stocks. Analyzing stocks can help investors identify which investment opportunities they believe will deliver strong returns. Further, stock analysis can assist investors in spotting potentially bad investments.
Whether your strategy involves short vs. long term investing, or day trading, analyzing stocks is going to be important.
Understanding Financial Statements
The first step in understanding stock analysis is knowing the basics of business reporting. There are three main types of financial statements that an investor may want to look at when doing analysis:
• Income statement: This statement shows a company’s profits, which are calculated by subtracting expenses from revenue.
• Balance sheet: The balance sheet compares a company’s assets, liabilities, and stockholder equity.
• Statement of cash flows: This statement outlines how a company is spending and earning its money.
In addition to these statements, a company’s earnings report
contains information that can be useful for doing qualitative analysis. The annual report includes the company’s plans for the future and stock value predictions.
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4 Ways to Analyze a Stock
The next step in stock evaluation is deciding which type of analysis to do. Here’s a look at some of the different methods for how to analyze a stock.
1. Technical Analysis
Technical analysis is a method for analyzing stocks that looks directly at a stock’s supply and demand in order to make investing decisions. This form of analysis takes the stance that all information needed is present within stock charts and the analysis of history and trends.
Some key focal points of technical analysis are:
• Stock prices move in trends.
• History repeats itself.
• Stock price history can be used to make price predictions.
• Stock price contains all relevant information for making investing decisions.
• Technical analysis does not consider intrinsic value.
Trend indicators are one of the most important parts of technical analysis. These indicators attempt to show traders whether a stock will go up or down in value. Uptrends mean higher highs and higher lowers, whereas downtrends mean lower lows and lower highs. Some common trend tools include linear regression, parabolic SAR, MACD, and moving averages.
Technical analysis also uses leading indicators and lagging indicators. Leading indicators signal before new trends occur, while lagging indicators signal after a trend has ended. These indicators look at information such as volume, price, price movement, open, and close.
There can be some pros and cons to using technical analysis, however, which can be important to consider when factoring in your risk tolerance.
Day traders tend to focus on technical analysis to try to capitalize on short-term price fluctuations. But because technical analysis generally focuses on short-term fluctuations in price, it’s not as often used for finding long-term investment opportunities.
Further, while technical analysis relies on objective and consistent data, it can produce false signals, particularly during trading conditions that aren’t ideal. This method of analysis also fails to take into consideration key fundamentals about individual shares or the stock market.
2. Qualitative Stock Analysis
When considering how to analyze a stock, it’s generally a good idea to look at whether the company behind the stock is really a good business. Qualitative analysis looks into factors like a company’s leadership team, product, and the overall industry it’s a part of.
A few key qualitative metrics include:
• Competitive advantage: Does the company have a unique edge that will help it be successful in the long term? If a company has patents, a unique manufacturing method, or broad distribution, these can be positive competitive advantages.
• Business model: Analyzing a business model includes looking at products, services, brand identity, and customers to get a sense of what the company is offering.
• Strong leadership: Even a great idea and product can fail with poor management. Looking into the credentials of the CEO and top executives of a company can help in evaluating whether it’s a good investment.
• Industry trends: If an industry is struggling, or looks like it may in the future, an investor may decide not to invest in companies in that industry. On the other hand, new and growing industries may be better investments. This is not always the case, as there are strong companies in weak industries, and vice versa.
3. Quantitative Analysis
Similar to technical analysis, quantitative analysis looks at data and numbers in an attempt to predict future price movements. Specifically, quantitative analysis evaluates data, such as a company’s revenues, price-to-earnings ratio, and earnings-per-share ratio, and uses statistical modeling and mathematical techniques to predict a stock’s value.
The upside is that this financial data is publicly available, and it creates an objective, consistent starting point. It can help with identifying patterns, and it can be useful in assessing risk. However, it requires sifting through a lot of data. Further, there’s no certainty when it comes to patterns, which can change.
4. Fundamental Analysis
Fundamental analysis looks at a company from a basic financial standpoint. This gives investors a sense of the company’s financial health and whether its stock may be under- or overvalued. Fundamental analysis takes the stance that a company’s stock price doesn’t necessarily equate to its value.
There are a number of key tools for fundamental analysis that investors might want to familiarize themselves with and use to get a fuller picture of a stock.
Earnings Per Share (EPS)
One of the main goals for many investors is to buy into profitable companies. Earnings per share, or EPS, tells investors how much profit a company earns per each share of stock, and how much investors are benefiting from those earnings. Companies report EPS quarterly, and the figure is calculated by dividing a company’s net income, minus dividend payouts, by the number of outstanding shares.
Understanding earnings per share can give investors guidance on a stock’s potential movement. On a basic level, a high EPS is a good sign, but it’s especially important that a company shows a high or growing EPS over time. The reason for this is that a company might have a temporarily high EPS if they cut some expenses or sell off assets, but that wouldn’t be a good indicator of the actual profitability of their business.
Likewise, a negative EPS over time is an indicator that an investor may not want to buy a stock.
Revenue
While EPS relates directly to a company’s stock, revenue can show investors how well a company is doing outside the markets. Positive and increasing revenues are an indicator that a company is growing and expanding.
Some large companies, especially tech companies, have increasing revenues over time with a negative EPS because they continue to feed profits back into the growing business. These companies can see significant stock value increases despite their lack of profit.
One can also look at revenue growth, which tracks changes in revenue over time.
Price-to-earnings (P/E) Ratio
One of the most common methods of analyzing stocks is to look at the P/E ratio, which compares a company’s current stock price to its earnings per share. P/E is found by dividing the price of one share of a stock by its EPS. Generally, a lower P/E ratio is a good sign.
Using this ratio is a good way to compare different stocks. One can also compare an individual company’s P/E ratio with an index like the S&P 500 Index to get a sense of how the company is doing relative to the overall market.
The downside of P/E is that it doesn’t include growth.
Price-Earnings-Growth (PEG) Ratio
Since P/E doesn’t include growth, the PEG ratio is another popular tool for analyzing stocks and evaluating stock performance. To look at EPS and revenue together, investors can use the price-earnings-growth ratio, or PEG.
PEG is calculated by dividing a stock’s P/E by its projected 12-month forward revenue growth rate. In general, a PEG lower than 1 is a good sign, and a PEG higher than 2 indicates that a stock may be overpriced.
PEG can also be used to make predictions about the future. By looking at PEG for different time periods in the past, investors can make a more informed guess about what the stock may do next.
Price-to-Sales Ratio (P/S)
The P/S ratio compares a company’s stock price to its revenues. It’s found by dividing stock price by revenues. This can be useful when comparing competitors — if the P/S is low, it might be more advantageous to buy.
Debt-Equity Ratio
Although profits and revenue are important to look at, so is a company’s debt and its ability to pay it back. If a company goes into more and more debt in order to continue growing, and they’re unable to pay it back, it’s not a good sign.
Debt-equity ratio is found by dividing a company’s total liabilities (debt) by its shareholder equity. In general, a debt-equity ratio under 0.1 is a good sign, while a debt-equity ratio higher than 0.5 can be a red flag for the future.
Debt-to-EBITDA
Similar to debt-to-equity, debt-to-EBITDA measures the ability a company has to pay off its debts. EBITDA stands for earnings before interest, tax, depreciation, and amortization.
A high debt-to-EBITDA ratio indicates that a company has a high amount of debt that it may not be able to pay off.
Dividend Yield
While a stock’s price can vary significantly from day to day, dividend payments are a way that investors can earn a consistent amount of money each quarter or year. Not every company pays out dividends, but large, established companies sometimes pay out some of their earnings to shareholders rather than reinvesting the money into their business.
Dividend yield is calculated by dividing a company’s annual dividend payment by its share price.
One thing to note is that dividends are not guaranteed — companies can change their dividend amounts at any time. So if a company has a particularly high dividend yield, it may not stay that way.
Price-to-Book Ratio (P/B)
Price-to-book ratio, or P/B, compares a company’s stock market value to its book value. This is a useful tool for finding companies that are currently undervalued, meaning those that have a significant amount of growth but still relatively low stock prices.
P/B ratio is found by dividing the market price of a stock by the company’s book value of equity. The book value of equity is found by subtracting the company’s total liabilities from its assets.
Company Reports and Projections
When companies release quarterly and annual earnings reports, many of them include projections for upcoming revenue and EPS. These reports are a useful tool for investors to get a sense of a stock’s future. They can also affect stock price as other shareholders and investors will react to the news in the report.
Professional Analysis
Wall Street analysts regularly release reports about the overall stock market as well as individual companies and stocks. These reports include information such as 12-month targets, stock ratings, company comparisons, and financial projections. By reading multiple reports, investors may start to see common trends.
While analysts aren’t always correct and can’t predict global events that affect the markets, these reports can be a useful tool for investors. They can keep them up-to-date on any key happenings that may be on the horizon for particular companies. The information in the reports also can result in stock prices going up or down, since investors will react to the predictions.
Quantitative vs Qualitative Analysis
Here’s a quick rundown looking at the key differences between quantitative and qualitative analysis. Again, this can be important when weighing your risk tolerance as an investor.
|
Quantitative vs. Qualitative Analysis |
|
|---|---|
| Quantitative Analysis | Qualitative Analysis |
| Looks at data and numerical figures to predict price movements | Looks at business factors such as leadership, product, and industry |
| May require sifting through a lot of data, and may be difficult for some investors | Metrics include business models, competitive advantage, and industry trends |
| Concerned more with the “quantity” and hard data a business produces | Concerned more with the “quality” of a business |
Pros and Cons of Doing Your Own Stock Analysis
If you feel like you can do a little stock analysis on your own, there are some pros and cons to it.
Pros
Perhaps the most obvious pro to doing your own stock analysis is that you don’t need to pay someone else to do it, you can do it on your own schedule, and learn as you go. You can develop knowledge that’ll likely help you as you continue to invest in the future. There are also numerous tools out there that you can use to analyze stocks which may not have been around in years or decades past.
Cons
Stock analysis can be an involved process, which can require a lot of investment in and of itself – both monetarily (if you’re using paid tools) and in terms of time. Depending on how deep you want to go, too, it can be a complex process. You may get frustrated or burnt out, or even make a mistake that leads to a bad investment decision.
Test your understanding of what you just read.
The Takeaway
There are a number of ways to analyze stocks, including technical, fundamental, quantitative, and qualitative analysis. The more an investor gets comfortable with terms like P/E ratio and earnings reports, the more informed they can be before making any decisions. Stock analysis is an involved process, however, and may be above the typical investors’ head and ability.
It is important to do your research and homework in relation to your investments, however. If you feel like you could use some guidance or a helping hand, speaking with a financial professional is never really a bad idea.
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).
FAQ
What is the best way to analyze a stock?
There’s no “best” way to analyze stocks. The right option for an investor will depend on their personal preferences and investing objectives. And remember, there’s no need to just use one method to analyze a stock — often, analysts will combine different methods of analysis to generate a more robust stock analysis.
What are key indicators to look for when analyzing a stock?
There are a ton of potential indicators that investors can look at, but some broad indicators that investors can start with include stock price history, moving averages, a company’s competitive advantages, business models, and industry trends.
What is an example of stock analysis?
A very, very basic example of stock analysis would include looking at a stock’s share price, comparing it to its historical averages and moving averages, overall market conditions, and looking at the company’s financial statements to try and gauge where it might move next.
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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.
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.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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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Read moreDec
16
2025
Strike Price: What It Means for Options Trading
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
In options trading, a strike price represents the price at which an option purchaser can buy or sell an option’s underlying asset. An option strike price can also be referred to as an exercise price or a grant price, as it comes into play when a trader is exercising the option contract they’ve purchased.
A strike price can determine how much or how little an investor stands to gain by exercising an option contract, and can also inform the value of the option. Trading options can potentially generate higher rewards, though it can entail taking more risk than investing in individual stocks. Understanding strike prices is key to developing a successful options trading strategy.
Key Points
• Strike price is the price at which an option holder can buy or sell the underlying asset through the option.
• The strike price helps determine the value of an option and the potential gain for the trader.
• Strike prices are set when options contracts are written and can vary for different contracts.
• There are different types of options, including calls and puts, each of which will have a set strike price.
• Understanding strike price is crucial for developing a successful options trading strategy.
What Is a Strike Price?
An option is a contract that gives the owner or buyer of the option the right, though not the obligation, to buy or sell a particular security on or before a specific date, at a predetermined price. In options trading terminology, this price is called the strike price or the exercise price.
Strike prices are commonly used in derivatives trading. A derivative draws its value from an underlying investment. In the case of options contracts, this can be a stock, bond, commodity, or other type of security or index.
Further, options contracts can trade European-style or American-style. With European-style options, investors can only exercise them on their expiration date. American-style options can be exercised any time up to and upon the expiration date. This in itself doesn’t affect strike price for options contracts.
In options trading, there are two basic types of options: calls and puts. With either type of option, the strike price is set at the time the options contract is written. This strike price determines the price at which the underlying asset would be bought or sold if the option is exercised.
Calls
A call option conveys the right (though not the obligation) to a purchaser to buy shares of an underlying stock or other security at a set strike price. Call option writers are obligated to sell the shares if the option is exercised.
Puts
A put option conveys the right (though not the obligation) to a purchaser to sell shares of an underlying stock or other security at a set strike price. This is one way that investors can short a stock. Put option writers are obligated to buy the shares if the option is exercised.
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Examples of Strike Price in Options Trading
Having an example to follow can make it easier to understand the concept of strike prices and how they may affect the value of an option contract. When trading options, traders must select the strike price and length of time they’ll have before exercising an option.
The following examples illustrate how strike price works when trading call or put options.
Buying a Call
Call options, again, give a purchaser the right, but not the obligation, to purchase a security at a specific price. At the same time, the seller of the call option must sell shares to the investor exercising the option at the strike price.
Let’s say you hold a call option to purchase 100 shares of XYZ stock at $50 per share (the strike price). You believe the stock’s price, currently trading at $45, will increase over time. This belief eventually pans out as the stock rises to $70 per share thanks to a promising quarterly earnings call. At this point, you could exercise your option to buy shares of the stock at the $50 strike price. The call option seller would have to sell those shares to you at that price.
The upside here is that you’re purchasing the stock at a discount, relative to its actual market price. You could then turn around and sell the shares you purchased for $50 each at the new higher price point of $70 each. This allows you to collect a $20 per share profit, less the premium you paid to purchase the call contract and any trading fees owed to your brokerage (or online brokerage).
Keep in mind, however, that if the price of the underlying stock remains below the strike price, the option will expire worthless, and you will lose the premium you paid for the option.
Buying a Put
Put options give purchasers the right, but not the obligation, to sell a security at a specific strike price. The seller of a put option has an obligation to buy shares from a trader who exercises the option.
So, assume that you hold a put option to sell 100 shares of XYZ stock at $50 per share (the strike price). You believe that the stock’s price, currently at $55, is going to decline in the next few months. The stock’s price drops to $40 per share so you decide to exercise the option. This allows you to make a profit of $10 per share (minus the premium paid per share and any fees), since you’re selling the shares at the $50 strike price, rather than their current lower market price.
But again, if the price of the stock remains above the strike price the option will expire with no value and you would lose the premium you paid upfront.
Writing a Covered Call
A covered call is an options trading strategy that can be useful when an investor believes the price of stock they own may remain neutral or rise slightly. This strategy involves doing two things:
• Writing a call option for a security
• Owning an equivalent number of shares of that same security
Writing (or selling) covered calls is a way to potentially generate income from the premiums traders pay to purchase the call option. Premiums paid by a call option buyer are nonrefundable, even if they choose not to exercise the option later.
The premium from a covered call may also offer a degree of downside protection if the stock price falls slightly (though losses would still be substantial if the price dropped significantly)..
So, say you own 100 shares of XYZ stock, currently trading at $25 per share. You write a call option for 100 shares of that same stock with a strike price of $30. You then collect the premium from the investor who buys the option.
One of two things can happen at this point: If the stock’s price rises slightly, but remains below the $30 stock price, then the option will expire worthless. You still keep the premium for writing it and you still own your shares of stock.
On the other hand, assume the stock’s price shoots up to $35. The purchaser exercises the option, meaning you must sell them those 100 shares. You still collect the premium, but your profit from selling those shares is capped at $5 per share, given the $30 strike price.
Investors should always consider the potential tradeoffs of writing covered calls, since they could cap upside potential. Covered calls are generally suitable for investors who would be comfortable selling their shares, if needed.
Moneyness
Moneyness describes an option’s strike price relative to its market price. There are three ways to measure the moneyness of an option:
In the Money
Options are in the money when they have intrinsic value. A call option is in the money when the market price of the underlying security is above the strike price. A put option is in the money when the market price of the underlying security is below the strike price.
At the Money
An option is at the money when its market price and strike price are the same (or nearly the same).
Out of the Money
An out-of-the-money option has no intrinsic value. A call option is out of the money if the market price of the underlying security is below the strike price. A put option is out of the money when the market price of the underlying security is above the strike price.
Understanding moneyness is important for deciding when to exercise options and when they may be at risk of expiring worthless.
How Is Strike Price Determined?
The strike price of an option contract is set when the contract is written. Strike prices may be determined by the exchange they’re traded on (like the Chicago Board Options Exchange, or CBOE). For listed options, strike prices are set by the exchange at standardized intervals based on the underlying asset’s market price.
A writer may issue multiple strike prices for the same underlying security so traders can choose the level they want. For example, you might see five option contracts for the same stock with strike prices of $90, $92.50, $95, $97.50 and $100. This allows investors an opportunity to select varying strike prices when purchasing calls or put options for the same stock.
Note, however, that writing calls that aren’t covered entails significant risk and can result in substantial losses. Both individual and institutional investors can write options, but there is significant risk involved — particularly when the calls they write aren’t covered.
How Do You Choose a Strike Price?
When deciding which options contracts to buy, strike price is an important consideration. Stock volatility and the passage of time can affect an option’s moneyness and your potential losses or profits should you exercise the option.
As you compare strike prices for call or put options, consider:
• Your personal risk tolerance
• Where the underlying asset is trading, relative to the option’s strike price
• How long you have to exercise the option
You may also consider using various options trading strategies to manage risk. That may include using covered calls as well as long calls, long puts, short puts, married puts, and others. Learning more about how to trade options can help you apply these strategies to pursue potential profits while potentially managing risk exposure, given the high risk of options trading.
What Happens When an Option Hits the Strike Price?
When the price of an option’s underlying asset is equal to or near the strike price it’s considered at the money. This means it has no intrinsic value as the strike price and market price are the same. There’s typically no incentive for an investor to exercise an option that’s at the money at expiration as there’s nothing to be gained from either a call or put option. In this scenario, the option may expire worthless.
If you’re the purchaser of an option that expires worthless, you would lose the money you paid for the premium to buy the contract. If you’re the writer of the option, you would profit from the premium charged to the contract buyer.
The Takeaway
Strike price is a critical concept for investors to know, especially if they’re trading or otherwise dealing with options as a part of their investing strategy. In an options contract, the strike price simply refers to the set price at which the purchaser can buy or sell the underlying security. Again, options can be high risk and fairly high-level, and may not be appropriate for all investors.
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.
FAQ
What is a strike price in options trading?
The strike price, also known as the exercise price or grant price, is the predetermined price at which an investor can buy or sell the underlying asset of an option contract. This price is set when the options contract is written. It’s a critical factor that helps determine the value of the option and an investor’s potential gain or loss upon exercising the contract.
How does the strike price work for call and put options?
For call options, the strike price is the price at which the purchaser has the right, but not the obligation, to buy the underlying security if the market price moves in their favor. For put options, the strike price is the price at which the purchaser has the right, but not the obligation, to sell the underlying security if the market price moves favorably.
Note that writers of options contracts are obligated to buy or sell the underlying security at the strike price if a purchaser chooses to buy or sell the underlying security.
What are the three measures of an option’s “moneyness”?
Moneyness describes an option’s strike price relative to its market price. An option that is in the money (ITM) has intrinsic value. A call is ITM if its market price is above the strike price; a put is ITM if its market price is below the strike price.
An option that is out of the money (OTM) has no intrinsic value. A call is OTM if the market price is below the strike price; a put is OTM if the market price is above the strike price.
An option is at the money (ATM) if the market price and strike price are the same.
Photo credit: iStock/Paul Bradbury
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.
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.
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.
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.
SOIN-Q325-033
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