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.
The financial system is far more broken than people realize.
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...
As an outside observer, I used to believe the stock market was solid and mostly rational, and that obviously it could not be influenced by a single actor or a subreddit community, contrary to a "playground" like the Bitcoin market. I get the feeling everyone says they see the emperor's clothes in the stock market reliability, anticipating everything, but in reality it's just short term gambling and post rationalization.
The last few months have been pretty crazy. I've been tracking WSB's most commented stocks as a sideproject - https://topstonks.com
Up until yesterday you could reliably hop on whatever the hivemind was interested and make some money. They even foreshadowed the market drop by mentioning the VXX before the correction.
It'll be interesting to see what happens in the next few days.
Buffet has complained about how he has to be subtle to move in or out of positions because he is so big he creates his own weather. He seems to care whether he makes money from making good choices versus brand recognition. It sounds like he has to use third parties to do big moves and of course they are going to want to take a bite. Nobody is going to move millions of dollars of inventory for you out of the goodness of their hearts.
Someone who does not give a shit can do a lot of damage without technically breaking the law.
Entertaining and wrong. confuses cause and effect. The surging stock market leads to the rise in implied volatility, not the other way around. This s a common occurrence and not indicative of manipulation. This pattern happened in 1997-2000 too. The S&P 500 and volatility rose together for 3 years strait.
So much of the financial "froth" could be elimanated by a law that taxed taking speculative positions in a punitive way and relatively rewarded buying and holding. If you compare the function of the market 100 years ago (owning significant stock mean't you had some degree of interest in the long term prospects of a company) versus today you can see the problem. Financialization of the economy actually doesn't produce much. It mostly transfers money from productive uses or away from more equitably income distribution in the population to speculators and irresponsible parties like Softbank and the harebrained ideas they invested in.
But are their influence really more than retail investors ? Especially the ones from wallstreetbets / robinhood who came after / during the pandemic. At the end of the day all these people only bought options, nothing special.
Options are crucial for price discovery. naturally their value goes up in the face of uncertainty. As a mm you don’t have to buy the underlying to cover short calls, you can also buy less far out calls, as long as the black scholes price for the spread is favorable.
Assuming they actually have this ability to pump the markets, what stops them from doing it over and over again infinitely? Market makers NEED to hedge right? Would people catch on and they couldn't sell their inflated calls at the end of the ride?
The WSJ article on the topic has a little more specific information:
Japan’s SoftBank, which bought options tied to around $50 billion worth of individual tech stocks.
...
Regulatory filings show SoftBank bought nearly $4 billion of shares in tech giants such as Amazon.com Inc., Microsoft Corp. and Netflix Inc. this spring, plus a stake in Tesla. Not included in those disclosures is the massive options trade, which is built to pay off if the stock market rises to a certain level and then lock in gains, the people said.
SoftBank bought a roughly equal amount of call options tied to the underlying shares it bought, as well as on other names, according to people familiar with the matter. It also sold call options at far higher prices. This allows SoftBank to profit from a near-term run-up in stocks and then reap those profits by unloading its position to willing counterparties.
So they are buying stock in tech companies, then compounding the bet that the stock price will go up by buying an equal dollar amount (in this case, corresponding to 11x the number of shares) of Out-of-The-Money calls. Then they wait for the price of the stock to go up, fueled in part by the Market Makers need to buy stock to hedge their exposure to the calls that SoftBank bought.
Once it's gone up, they then sell (presumably In-The-Money but at a greater strike price than they paid?) calls for more than they paid for the initial OTM calls. When those calls are excercised (because they are ITM) they sell the stock for a profit (price increase plus the premium of the covered call). Because they are buying large enough amounts of calls to cause the Market Makers to buy enough to increase the price of the stock, their strategy is more likely to work than it would be for normal investor.
One big unanswered question: do they sell their OTM calls before expiration after they increase in value? Or are they able to exercise them once they are ITM? I'd guess their goal is to exercise, since that helps them put more pressure on the MM's to hedge and while also letting them continue the strategy.
The reason this question matters is it affects how much stock is going to flood the market once SoftBank stops buying calls. SoftBank will presumably sell the relatively small number of billions of dollars of tech stocks they are holding at the right time, since they know when they'll stop buying calls.
Once the number of outstanding calls drops, then next thing that will happen is that the MM's will presumably sell their enormous hedge, causing the prices to drop rapidly. But obviously, the MM's don't want the price to drop until they have completed their sell off. Are they allowed to use the same strategy that SoftBank is using? That is, can they pre-sell a sufficient amount of (possibly discounted) ITM calls so that they can unload their hedge without affecting the price they receive? Or do they sell them on the market? Is there information available about what the MM's are holding as hedges?
All the finger pointing sound sensational, but the stocks are not going up because they are hype companies like in the dotcom, these are best of the crop companies. I would say they are adding in a bit of sensationalism to get people excited. I wonder which side of the trades they are on?
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.
> When shares keep rising, managing the hedge entails buying more stock.
I don’t understand. If I sell a call option on a single share, I can hedge this by buying a single share and not doing anything until the contract expires, right?
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.
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.
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.
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.
Funny to read the comments here and how people debate and wonder what could be the causes of stock markets rallying.
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...
Quantitative easing (QE) at its best without Fed taking full responsibility with what can eventually happen.
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.
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).
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.
Typical examples of this are seen in illiquid stocks for a few thousand USD at a time, with time ranges from hours to days.
It is frowned upon by regulators because it increases volatility in the markets that are disconnected from fundamentals.
[+] [-] synaesthesisx|5 years ago|reply
The financial system is far more broken than people realize.
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...
[+] [-] tarsinge|5 years ago|reply
Edit: punctuation
[+] [-] cdiamand|5 years ago|reply
Up until yesterday you could reliably hop on whatever the hivemind was interested and make some money. They even foreshadowed the market drop by mentioning the VXX before the correction.
It'll be interesting to see what happens in the next few days.
[+] [-] itsoktocry|5 years ago|reply
Lots of speculation that they aren't the only ones. The recent run up in TSLA looks suspicious as well; huge volume on way OTM call buying.
Here's a random reddit thread from months ago:
https://old.reddit.com/r/stocks/comments/hk7y1o/tesla_infini...
[+] [-] hinkley|5 years ago|reply
Someone who does not give a shit can do a lot of damage without technically breaking the law.
[+] [-] paulpauper|5 years ago|reply
[+] [-] Mayzie|5 years ago|reply
Is there a good resource out there to help people like me who are an absolute beginner?
[+] [-] morpheos137|5 years ago|reply
[+] [-] maest|5 years ago|reply
Can you please not say stuff like that?
You're only calling it "free money" with the benefit of hindsight. And even then, it's still not "free", since you got a big 5% drop in one day.
[+] [-] mam2|5 years ago|reply
[+] [-] 0898|5 years ago|reply
[+] [-] naveen99|5 years ago|reply
[+] [-] mrlala|5 years ago|reply
>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...
I choose not to participate. It's broken as all fuck and I'm not going to be a part of it.
[+] [-] arcticbull|5 years ago|reply
[+] [-] dharma1|5 years ago|reply
[+] [-] quietthrow|5 years ago|reply
[+] [-] fullshark|5 years ago|reply
[+] [-] stwrong|5 years ago|reply
Sorry I am a stocks noob but losing blood these past two days. Any help is appreciated.
[+] [-] elevenoh|5 years ago|reply
What does that even mean... lol
Rise != 'free money'.
[+] [-] nkurz|5 years ago|reply
Japan’s SoftBank, which bought options tied to around $50 billion worth of individual tech stocks. ... Regulatory filings show SoftBank bought nearly $4 billion of shares in tech giants such as Amazon.com Inc., Microsoft Corp. and Netflix Inc. this spring, plus a stake in Tesla. Not included in those disclosures is the massive options trade, which is built to pay off if the stock market rises to a certain level and then lock in gains, the people said.
SoftBank bought a roughly equal amount of call options tied to the underlying shares it bought, as well as on other names, according to people familiar with the matter. It also sold call options at far higher prices. This allows SoftBank to profit from a near-term run-up in stocks and then reap those profits by unloading its position to willing counterparties.
So they are buying stock in tech companies, then compounding the bet that the stock price will go up by buying an equal dollar amount (in this case, corresponding to 11x the number of shares) of Out-of-The-Money calls. Then they wait for the price of the stock to go up, fueled in part by the Market Makers need to buy stock to hedge their exposure to the calls that SoftBank bought.
Once it's gone up, they then sell (presumably In-The-Money but at a greater strike price than they paid?) calls for more than they paid for the initial OTM calls. When those calls are excercised (because they are ITM) they sell the stock for a profit (price increase plus the premium of the covered call). Because they are buying large enough amounts of calls to cause the Market Makers to buy enough to increase the price of the stock, their strategy is more likely to work than it would be for normal investor.
One big unanswered question: do they sell their OTM calls before expiration after they increase in value? Or are they able to exercise them once they are ITM? I'd guess their goal is to exercise, since that helps them put more pressure on the MM's to hedge and while also letting them continue the strategy.
The reason this question matters is it affects how much stock is going to flood the market once SoftBank stops buying calls. SoftBank will presumably sell the relatively small number of billions of dollars of tech stocks they are holding at the right time, since they know when they'll stop buying calls.
Once the number of outstanding calls drops, then next thing that will happen is that the MM's will presumably sell their enormous hedge, causing the prices to drop rapidly. But obviously, the MM's don't want the price to drop until they have completed their sell off. Are they allowed to use the same strategy that SoftBank is using? That is, can they pre-sell a sufficient amount of (possibly discounted) ITM calls so that they can unload their hedge without affecting the price they receive? Or do they sell them on the market? Is there information available about what the MM's are holding as hedges?
[+] [-] youeseh|5 years ago|reply
[+] [-] jb775|5 years ago|reply
[+] [-] davedx|5 years ago|reply
[+] [-] Oricle|5 years ago|reply
[deleted]
[+] [-] z3ncyberpunk|5 years ago|reply
[deleted]
[+] [-] ramoz|5 years ago|reply
https://www.zerohedge.com/markets/one-day-after-zero-hedge-f...
[+] [-] QuesnayJr|5 years ago|reply
[+] [-] markus_zhang|5 years ago|reply
[+] [-] m3kw9|5 years ago|reply
[+] [-] vajrabum|5 years ago|reply
[+] [-] kyle_morris_|5 years ago|reply
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.
[+] [-] simonpure|5 years ago|reply
Too bad he's on paternity leave at the moment so we won't get his take this time around.
[0] https://www.bloomberg.com/opinion/articles/2020-02-26/reddit...
[+] [-] smabie|5 years ago|reply
[+] [-] runeks|5 years ago|reply
> When shares keep rising, managing the hedge entails buying more stock.
I don’t understand. If I sell a call option on a single share, I can hedge this by buying a single share and not doing anything until the contract expires, right?
[+] [-] guardiangod|5 years ago|reply
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.
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.
[+] [-] johnwheeler|5 years ago|reply
[+] [-] paulpauper|5 years ago|reply
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.
[+] [-] cs702|5 years ago|reply
1. Softbank has been paying up to buy a mountain of call options on big cap tech stocks.
2. Lots of inexperienced traders have been piling on, buying those same call options, e.g., on Robinhood.
3. The brokers/hedge funds selling those call options have been hedging by... buying big cap tech stocks.
4. Passive funds have been mindlessly following along, "copying the market," getting more and more concentrated on big cap tech.
What happens if (i.e., when) 1, 2, and 3 unwind?
[+] [-] dharma1|5 years ago|reply
"That FT article (following @zerohedge ) on Softbank suggests the fail whale bought "billions" of call options.
The real story is that Softbank is dwarfed by retail traders, who spent $34 BILLION in call premiums in a month.
Unless Softbank cuts its orders into 10-lots, that is."
[+] [-] iamsanteri|5 years ago|reply
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...
Quantitative easing (QE) at its best without Fed taking full responsibility with what can eventually happen.
Robinhood and other trading apps for the consumer are just small sparks contributing to the growing fire...
[+] [-] Radle|5 years ago|reply
[+] [-] FiReaNG3L|5 years ago|reply
[+] [-] iammru|5 years ago|reply
[+] [-] twblalock|5 years ago|reply
Of course, retail investors followed slavishly along too. So this isn't merely a problem with index funds.
Also, all that said, tech stock prices today are still way up compared to when Softbank started buying options back in April.
[+] [-] neonate|5 years ago|reply
[+] [-] jeffreyrogers|5 years ago|reply
[+] [-] jrg123|5 years ago|reply
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.
Typical examples of this are seen in illiquid stocks for a few thousand USD at a time, with time ranges from hours to days.
It is frowned upon by regulators because it increases volatility in the markets that are disconnected from fundamentals.
[+] [-] logicslave|5 years ago|reply
[+] [-] fakedang|5 years ago|reply
[+] [-] xwdv|5 years ago|reply