Did SoftBank Fuel The Tech Stock Rally?

Did SoftBank Fuel The Tech Stock Rally?

over 3 years ago2 mins

Mentioned in story

You’re gonna need a bigger boat: while Japanese tech giant SoftBank reportedly acted as a “whale” sending US tech stocks surging last month, a shoal of smaller investors may have made even more of a splash 🐳

What does this mean?

SoftBank’s snapped up billions of dollars’ worth of call options on major tech stocks recently. These gave it the right to buy the shares a few months hence at predetermined prices – which will hopefully turn out to be lower than their market value by then. But the combined efforts of retail investors were likely a much bigger influence on Big Tech’s dramatic rise in August.

Daily Brief Image

These small fry bought call options set to expire in a matter of weeks rather than months, forcing the “market makers” taking the other side of the bet to hedge their exposure. Those selling call options on, say, Apple shares risked handing the stock over at a large loss if retail investors’ options came good 🤔 Rather than taking that risk, the market makers bought up Apple shares immediately after selling the call options – pushing their price up and in turn making those very same short-term options more valuable.

Why should I care?

Given its notoriety, SoftBank has naturally attracted attention for its tech stock option-buying 👀 But their longer time frame suggests these options would’ve benefited more from an increase in the underlying shares’ implied volatility than from rapid price rises alone – something which has a greater impact on the value of shorter-term options.

SoftBank was reportedly on track to pocket $4 billion worth of profit from all this derivative trading 💰 But its own shares were instead forced to swallow a 7% hit on Monday: last week’s tech selloff may actually end up denting SoftBank’s profit this quarter.

Daily Brief Image


All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG