Caught, practically with his hands in the bag. “SoftBank unmasked as ‘Nasdaq whale’ that stoked tech rally”: ‘SoftBank unmasked as’the Nasdaq Whale‘that triggered the tech rally ”: is the title of the article in the Financial Times, which recounted the stunt committed by SoftBank.
First of all, it is good to clarify the protagonists of the story. SoftBank is a Japanese investment firm that, in recent years, has been doing huge bets on start-ups of the technology sector, through the Vision Fund, worth $ 100 billion.
Its role, in buying up Silicon Valley stocks, has long been known and demonstrated by documentation that demonstrates how the group, over the years, has decided to move away from the telecom sector and instead focus on on strategic investments in technological freshmen, of the caliber of Uber e WeWork.
However, the rumors reported over the weekend by the Financial Times and the Wall Street Journal revealed the enormous extent of the bets launched by the founder. Masayoshi Son, which in recent years would have embarked on a massive trading of derivatives. How? Through a strategy called “positive gamma” with which he would buy individual shares of hi-tech and internet companies, and then in a sense inflate them by himself, buying call options on the same securities.
Since these are call options, we are talking here of derivative instruments which give their buyer the right to buy securities on a certain date and at a certain price. Obviously, the gain is realized and increases when, at the time of purchase, the security is traded on the market at a value higher than that of the price agreed in the option contract: in this way, those who bought the call option he can buy up the stock for less than he would have to pay if he were to buy the stock on the stock exchange.
Softbank and the purchase of $ 4B of call options on the Wall Street titans
According to the Wall Street Journal, Softbank would have bought $ 4 billion of options related to previously hoarded securities, of the caliber of Amazon (AMZN), Microsoft (MSFT) e Netflix (NFLX). Citing unnamed sources, the newspaper reported that the options generated approximately $ 50 billion in exposure.
Both the WSJ and the FT – the Financial Times was the first newspaper to report the story – have suggested that SoftBank’s own options would determine in part the recent Wall Street rally, leading to both the Nasdaq Composite than the S&P 500 to ring continuous record values, almost daily, thanks to the strong impact that, on the lists, is represented by a handful of technological stocks (read FANGMAN)
Suffice it to say that some stocks that have also tested historical records impact the S&P 500 for a quarter of its value. The FT described the Japan holding’s strategy as a “dangerous” bet.
“These are among the most significant trading operations I have witnessed in the last 20 years of activity – commented the manager of a hedge fund that focuses on derivatives trading – The flows are enormous”.
In the plans ofhigh finance something strange, to be precise the sharp surge in call option purchases, had already been noticed in recent weeks, given the presence of mysterious trading operations that would, according to many, exacerbate the so-called melt-up, occurred during the summer, of several tech stocks.
A recent report by Goldman Sachs reported by the FT he cited, in particular, that the total nominal value of call options launched on individual US securities stood at $ 335 billion in the last two weeks, more than triple the average for the period between 2017 and 2019.
The retail trading boom has certainly played a significant role in the euphoria that has affected Wall Street, but those in the know have pointed out that the size of the latest purchases on the options that have poured into the market was too large to have been fueled. give it investitori retail.
In addition to the size, “the aggressiveness of the mysterious call buyer, combined with the tired phase in trading typical of the summer, was an important factor not only in triggering the rises of many Big Tech names, but also rise in the US stock market“, According to what Charlie McElligott, strategist of Nomura, commented to the British newspaper.
“Wall Street still remains in danger, and those flows are still out there.” And anyway, apart from the rumors, there is also the data. The FT reports that, according to the documents filed with the Securities and Exchange Commission last month, SoftBank bought nearly $ 2 billion in Amazon, Alphabet, Microsoft and Tesla shares; investments whose purchase was partly financed by the cash that the Japanese holding raised with the asset sales program for $ 41 billion launched by the collapse of its prices, during the market earthquake caused by Covid-19.
That asset sale was decided as part of the plan announced by the group last March, on the intention to raise 4.5 trillion yen, the equivalent of $ 42 billion. The collapse of the Softbank stock was inevitable, which fell on the Tokyo stock exchange more than 7% in today’s session, with $ 8 billion of market value gone up in smoke.
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