This is hands down the most entertaining thing I’ve read today. SoftBank is responsible for the spike in gamma across the board, dumping massive amounts of money into OTM calls. Retail (WSB) speculators see unusual options flow, end up piling in on calls and amplify the effect. Market makers are forced to buy the underlying in order to delta hedge, and the price goes up even higher. Rinse and repeat...the positive feedback loop continues and stocks actually only go up.<p>The financial system is far more broken than people realize.<p>I’m guilty of taking advantage of this myself, but it’s basically been free money for the last several months. Up until yesterday at least...
Zero Hedge has been deemed controversial, but their reporting here is... wow.<p><a href="https://www.zerohedge.com/markets/one-day-after-zero-hedge-ft-unmasks-softbank-call-buying-nasdaq-whale" rel="nofollow">https://www.zerohedge.com/markets/one-day-after-zero-hedge-f...</a>
<a href="https://archive.is/h8zfx" rel="nofollow">https://archive.is/h8zfx</a><p><i>SoftBank is the “Nasdaq whale” that has bought billions of dollars’ worth of US equity derivatives in a move that stoked the fevered rally in big tech stocks before a sharp pullback on Thursday, according to people familiar with the matter.</i>
Matt Levine covered this same strategy back in February wrt WSB [0].<p>Too bad he's on paternity leave at the moment so we won't get his take this time around.<p>[0] <a href="https://www.bloomberg.com/opinion/articles/2020-02-26/reddit-posters-pick-the-stocks-now" rel="nofollow">https://www.bloomberg.com/opinion/articles/2020-02-26/reddit...</a>
Why do most posters here think SB lost money with this? They've definitely _made_ money, a lot of it. I'd be damn if they didn't double or even triple.<p>The article claims SB started their moves in April ($4 billion in FAANG stocks and another $4 in _call_ options) and continued up to last week. Even if SB lost all of Aug's gains, they'd still come out ahead with the gains from April-July. The retail investors poured in over $32 billion into the market in the same span.<p>Now whether this is good old smart investment or blatant stock manipulation, is a different story. Though I got a feeling Trump's DoJ will not exactly rush to crack down on SB.
This is so sad. Masayoshi Son is an ego investor trying to prove himself with the likes of Warren Buffett by making massive bets in an industry he doesn't understand. Coming off the WeWork debacle, he's gambling the money of others' for the sake of his own reputation. Unlike Buffett, he's largely unproven and using a far greater percentage of O.P.M. (Other peoples' money) than his own.
This is not the reason. As usual, hype and bad reporting from FT and ZeroHedge. So when the market makes new highs again who will be blamed next? Softbank again? It has to do with companies moving their workforce away from the offices. It has to with amazon and Facebook being so dominant The usual factors that are to blame for the past decade or so. It came fromzeorhedg.e go figure.<p>it is not uncommon for surging stock prices to lead to implied volatility to rise. The reason is, as the price goes up very steeply, the cross sectional area becomes smaller so less volume is required to move the price a a lot either way.
In summary:<p>1. Softbank has been paying up to buy a mountain of call options on big cap tech stocks.<p>2. Lots of inexperienced traders have been piling on, buying those same call options, e.g., on Robinhood.<p>3. The brokers/hedge funds selling those call options have been hedging by... buying big cap tech stocks.<p>4. Passive funds have been mindlessly following along, "copying the market," getting more and more concentrated on big cap tech.<p>What happens if (i.e., when) 1, 2, and 3 unwind?
<a href="https://twitter.com/sentimentrader/status/1301914836142612481" rel="nofollow">https://twitter.com/sentimentrader/status/130191483614261248...</a><p>"That FT article (following
@zerohedge
) on Softbank suggests the fail whale bought "billions" of call options.<p>The real story is that Softbank is dwarfed by retail traders, who spent $34 BILLION in call premiums in a month.<p>Unless Softbank cuts its orders into 10-lots, that is."
Funny to read the comments here and how people debate and wonder what could be the causes of stock markets rallying.<p>There has been speculation that Fed is aiding foreign central banks (like the Swiss central bank) in buying US stocks such as Apple and others... When central banks can print money in an unlimited manner (with no real risk) and buy real securities like stocks, the prices keep going up...<p>Quantitative easing (QE) at its best without Fed taking full responsibility with what can eventually happen.<p>Robinhood and other trading apps for the consumer are just small sparks contributing to the growing fire...
They're acting like teenagers with a Robinhood account.
I get they lost a lot of money but this looks like a hail mary attempt to recover from their bad investments.
And the index funds followed right along. Perhaps index funds, by blindly following market trends, amplify bad actors' ability to distort the market.<p>Of course, retail investors followed slavishly along too. So this isn't merely a problem with index funds.<p>Also, all that said, tech stock prices today are still way up compared to when Softbank started buying options back in April.
SoftBank seems to have an uncanny ability to lose money. Just taking the opposite position of SoftBank would probably get you a pretty good return. (I realize that's not possible since a lot of their investments are in the private markets).
This is market manipulation.<p>It is an example of pump and dump: a market participant creates a position for the purpose of inducing other participants to join them before selling once the price moves in the direction of their position. What makes it unusual is both the size and time scale of the manipulation.<p>Typical examples of this are seen in illiquid stocks for a few thousand USD at a time, with time ranges from hours to days.<p>It is frowned upon by regulators because it increases volatility in the markets that are disconnected from fundamentals.
Not really true considering that moves were tied to very short-dated OTM calls starting late April. I don’t think even Softbank is that irresponsible. Regardless, we’ll likely see another market crash before election. Stay tuned.
How is this legal? If they are buying options to force the markets to rise like this, isn't this blatant market manipulation? Or is this okay because they have a lot of money?
cool, so using $2B i buy TSLA and using another $2B i buy a planet scale truckload of TSLA $10K calls, and the MMs would buy at least some shares to hedge it - and even some small percentage of that planet scale truckload number is really a large number of shares thus moving the stock high, which in turn increases the MMs' risks associated with the calls, and forces the MMs to buy even more shares to cover that increased risk which naturally drives the price even higher - positive feedback loop! - and now i dump the TSLA i have. Even without the herd of retail and passives amplifying the effect, it is already a wonderful play... Yep, it is great to be a big guy, ie. to have those $Bs to play at that scale. Though i wonder whether it falls under market manipulation and thus prohibited.
The vibe I'm getting from the FT and the WSJ is that SoftBank and Masayoshi Son are colossal idiots. That was the case since the WeWork IPO and even earlier (when the story about SoftBank funding competing startups came out). Does this mean that SoftBank is much worse than the rest of the finance industry? Or is it simply because they're based in Tokyo and don't have a PR team in New York and London that's as strong as their competitors?
I'd be interested in proof/data (if it is even possible) rather than "some investment banker claims", etc.<p>The finance industry is huge and even softbank with their $100 billion is a tiny player in the market especially one as large and liquid as the nasdaq.<p>What about the nasdaq rally from 2009 to 2020? What that softbank as well?<p>The world flush with cheap capital, money flooding to the US because of tensions around the world, election year rally, etc seem far more plausible cause than softbank.<p>Softbank by itself isn't remotely big enough to move markets for such a long period of time to set a trend.