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SoftBank unmasked as ‘Nasdaq whale’ that stoked tech rally

583 points by xoxoy 6y ago

pestkranker 6y ago
Paywalled.
- speeder 6y ago
  Risky solution of the day but... https://www.zerohedge.com/markets/one-day-after-zero-hedge-ft-unmasks-softbank-call-buying-nasdaq-whale https://www.zerohedge.com/markets/one-day-after-zero-hedge-f...
  - seemack 6y ago
    Anyone familiar with zerohedge? I'm not going to make any real judgements but they certainly don't make a good first impression. They repeatedly claim that they reported this a day earlier than FT but don't even provide a link to this supposed report, spelling mistakes throughout... They do make it more tempting to pay for FT though!
    - processing 6y ago
      https://www.zerohedge.com/markets/speculation-emerges-over-identity-mystery-marketwide-call-buyer https://www.zerohedge.com/markets/speculation-emerges-over-i...
      - seemack 6y ago
        Thank you!
- bobo_legos 6y ago
  https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205?mod=e2tw https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fu... WSJ confirming that report. Doesn't have a ton of details.
- awinder 6y ago
  Not positive but this appears to be coverage of the same story https://www.google.com/amp/s/www.wsj.com/amp/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205 https://www.google.com/amp/s/www.wsj.com/amp/articles/softba...
  - deleted 6y ago
    [deleted]
- deleted 6y ago
  [deleted]
- incomplete 6y ago
  https://archive.is https://archive.is
guardiangod 6y ago
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.
- fataliss 6y ago
  Gotta fuel these flaky startup investments somehow! I always wondered how this company was still alive despite terrible investment track record. I guess they are at least good at financial engineering and market manipulations...
  - z3ncyberpunk 6y ago
    Jokes on us, the whole economy is based on exploitation and manipulation!
  - netsharc 6y ago
    Yeah, losing a few billion dollars (not sure how many they did lose) is not that bad if you still have several billion dollars to manipulate things with...
- Traster 6y ago
  It's almost certain the paper value of their investments is up - if you drive $4Bn into a market, the prices are going to go up. The question is whether they can actually extract that value from the market. More likely, they now have a decent paper profit but the first sign of movement out of their position will involve a precipitous drop.
ramoz 6y ago
Zero Hedge has been deemed controversial, but their reporting here is... wow. https://www.zerohedge.com/markets/one-day-after-zero-hedge-ft-unmasks-softbank-call-buying-nasdaq-whale https://www.zerohedge.com/markets/one-day-after-zero-hedge-f...
- vajrabum 6y ago
  The reason for the controversy is there are indications that Zero Hedge may be an outlet for a state level actor. See here for one perspective. https://newrepublic.com/article/156788/zero-hedge-russian-trojan-horse https://newrepublic.com/article/156788/zero-hedge-russian-tr...
  - opportune 6y ago
    This is a really good article. I guess the best way to get top-notch investigative journalism is to personally threaten a journalist
  - kaycebasques 6y ago
    Wow, back when I visited ZH I would always be in this cognitively dissonant place where I was getting a lot of value out of the market-related articles and cringing at all the conspiratorial political stuff. I can't believe I never considered the idea that it's sponsored by the Kremlin.
  - blahblah3737 6y ago
    read the article, it's not very convincing to be honest. it's a long winded biography of the owner of the site who is bulgarian. the evidence is that the reporting content is right-leaning/conspiratorial and that he is bulgarian basically.
  - rapsey 6y ago
    Or maybe they are being framed for calling out the bullshit in other mainstream media.
    - vkou 6y ago
logicslave 6y ago
Hard to imagine what their end goal for this could have been
- deleted 6y ago
  [deleted]
- gwd 6y ago
  Money laundering / plausibly deniable embezzlement? 1. Inform people to whom you want to transfer money that you're about to push the market up. They buy a wide range of tech stocks (or other derivatives that rely on tech stocks) 2. Make some insane trades that push up tech stocks for a few days 3. Your targets sell, taking a hefty profit You've effectively transferred money out of your hedge fund to these other people; if the "area of effect" is large enough, it should be difficult to tell who was the target. Don't know if this is efficient or plausible.
  - srtjstjsj 6y ago
    If it's that easy, just do it for yourself to profit.
    - dllthomas 6y ago
      I doubt gwd has access to a tremendous pile of other people's money to experiment with, other considerations aside.
  - raincom 6y ago
    Laundering is needed when money is dirty. In this case, money is not dirty. Embezzlement is a stupid move on the part of any billionaires. They can collect management fees instead, and be safe.
- raesene9 6y ago
  I'll take a wild assed guess at it, what follows is pure speculation. Many of Softbank's portfolio companies are not doing well (e.g. Uber, WeWork), and they're starting to get a bit anxious about whether they'll be able to show the returns that investors are looking for. So they've turned to risky strategies which, in the short term, could show a high return on investment to keep their investors happy. Of course, when/if this unwinds, they could be in serious trouble, but that falls into "problems for another day" I'd usually say that no serious investment company could be this shortsighted, but after seeing what Wirecard did, I'm no longer so sure :)
dionian 6y ago
I dont trust news sources that aren't deemed controversial, these days.
- Proziam 6y ago
  I'm struggling to bring to mind a 'reputable' source that I haven't caught in some heinous misinformation in the past couple of years. Potentially worse is that social media companies are censoring opinions they disagree with. I am genuinely concerned about how people will stay informed in the future.
  - pokstad 6y ago
    Try out https://www.allsides.com/unbiased-balanced-news https://www.allsides.com/unbiased-balanced-news. I find it to be a decent evaluator of accuracy and bias.
    - Proziam 6y ago
      It's a useful aggregator to be sure. Unfortunately, it doesn't solve censorship. Example: I was trying to research the current events in Kenosha. Naturally, there's a 'diverse' set of views on the subject matter, so I tried to just watch the videos of what happened and judge for myself. When I tried to send what I found to someone else, some of the videos magically disappeared. Of course, the (very) edited versions of those videos with commentary added on top are still available.
      - nitrogen 6y ago
        Something similar would happen years ago if you posted something from Wikileaks to Facebook (long before Wikileaks lost its reputation). You'd get a mysterious error after a delay, when any other site would post fine. I think HN does the same thing for different reasons -- mysterious error for suspected spam from new users or something like that.
      - Answerawake 6y ago
        You should set up youtube-dl on your machine so you can at least download the videos before they disappear. This tool can handle hundreds of websites and has come in handy so many times. One of the many projects I started and never finished was an auto Youtube downloader that you automatically detect when I watch a new Youtube video and archive it to a local NAS. I got tired of going back to an old bookmarked video only to find that it has been deleted either by the author or due to a copyright claim.
Radle 6y ago
That's a surprise. I thought markets are to big for a single actor to make such moves.
- Guest42 6y ago
  I think the analysis is so granular (and sometimes desperate for signal) that individual movers can have plenty of influence. Also, the volume of non-retail trades is low which amplifies larger trades. (My theories at least)
  - elliekelly 6y ago
    The end of August is also the time when trading volume tends to be at its absolute lowest, even among institutional investors.
  - MiroF 6y ago
    > Also, the volume of non-retail trades is low which amplifies larger trades. Source? I thought most volume was non-retail.
    - Guest42 6y ago
      Lower than usual. I should’ve been more specific.
- xt00 6y ago
  The volumes on options are not all that large typically. So many people will put a sell to open at a high price to see if somebody really wants the option.. sometimes people will bite and it causes a big jump in the option price.. once that happens it starts other people jumping in as well (and algorithms). But you can sometimes see options that have volumes of less than 10 contracts in a day -- sometimes 0 for non popular stocks. So if softbank was buying big quantities daily that could easily run up the price. And the wild thing is that if you see a big jump in call option interest way out of the money, then people who are wondering about the underlying stock think, hmm, maybe people are aware of some upside on this stock.. I think I'll buy some more shares of tesla or whatever because the call option behavior is so bullish. So basically if you want a stock to move one direction or another you probably could manipulate most easily by buying large quantities of options on one side or the other in such a way that people think you know something that you don't.
kyle_morris_ 6y ago
https://archive.is/h8zfx https://archive.is/h8zfx 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.
iammru 6y ago
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.
- ganoushoreilly 6y ago
  > https://newrepublic.com/article/156788/zero-hedge-russian-tr.. https://newrepublic.com/article/156788/zero-hedge-russian-tr.... Yep it looks like yolobro /r/wallstreetbets is their inspiration
- itsoktocry 6y ago
  >from their bad investments. Do they have any good investments? They were heavy into WeWork and WireCard. They have about $10 billion into Uber. Lots of small oddballs like investing in Wag at $300MM valuation. Lost a bunch buying bitcoin at the peak. Now this.
  - xenospn 6y ago
    Wag wired those $300M back a few months ago.
  - blueline 6y ago
    they used to own 100B of alibaba i have to assume bytedance has/will work out favorably for them.. maybe im wrong there
  - djmobley 6y ago
    It was a $300m investment for a ~45% stake in Wag. Absolute madness.
  - iav 6y ago
    Unlike VC funds, SoftBank releases full accounting of the Vision fund quarterly, so this question is entirely answered here: https://group.softbank/system/files/pdf/ir/presentations/2020/investor-svf_q1fy2020_01_en.pdf https://group.softbank/system/files/pdf/ir/presentations/202... They had 6 full exits generating $5B of gains, plus another dozen companies went public and the mark to market on the whole is a $3B gain. I don’t see that they’ve ever invested in Bitcoin. The remaining portfolio is down about $5B on $60B invested - I have a lot of questions about how they are marking those securities, but surely it’s similar to the VC model of “Mark to the last third party investment, even if we led the investment, unless something really bad happened”. That’s where the WAG and WeWork losses would be. So all in they still think they are in the black by $3B on $80B invested. Even if they are mis marking the private book by 20%, the fund would generate a 0.9x return or disappointing but not a complete disaster.
synaesthesisx 6y ago
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...
- davedx 6y ago
  Time to load on up SQQQ!
- itsoktocry 6y ago
  >SoftBank is responsible for the spike in gamma across the board, dumping massive amounts of money into OTM calls. 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_infinity_call_gamma_squeeze/ https://old.reddit.com/r/stocks/comments/hk7y1o/tesla_infini...
  - missedthecue 6y ago
    Looks like SoftBank bought $4 billion in options over the summer. Retail accounts purchase $34 billion per month in options so I'm not buying into the theory that SoftBank is to blame for this.
    - mylons 6y ago
      source on retail investors? I also believe retail is having a larger effect, I just haven't seen this number before.
    - arcticbull 6y ago
FiReaNG3L 6y ago
Stock market feels like a big whole gambling machine at the moment, between QE and manipulation of this sort...
- johnwheeler 6y ago
  "at the moment"?
- lotsofpulp 6y ago
  I feel the opposite. US politicians across both parties have an incentive to keep the market indices going up and to the right. And so it will since politicians have control of the money supply.
  - duxup 6y ago
    " US politicians across both parties have an incentive to keep the market indices going up and to the right" Isn't that always the case? And does it make a difference? I feel like we see plenty of situations where politicians would not want to see the market crash, it still does... I don't doubt politics plays a part, but I'm not at all sure they've got switches that work exactly as desired all the time either...
    - lotsofpulp 6y ago
      If your time horizon is more than a couple years, then it has worked. They have the ability to create money and purchase bonds, equity, and simply give companies cash if needed. And they have. The biggest variable they don’t have control over is the best value or expected future value is the USD. Also, the invested-ness of US politicians is not just due to them owning stocks, but due to the people voting for them being invested in them by way of invested retirement funds and indirect exposure via government employee pensions.
      - duxup 6y ago
        >Also, the invested-ness of US politicians is not just due to them owning stocks, but due to the people voting for them being invested in them by way of invested retirement funds and indirect exposure via government employee pensions. That's also a permanent thing ...
jeffreyrogers 6y ago
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).
- xmprt 6y ago
  If you bought puts for the last few months then you probably lost a lot of money. I don't think inversing them would actually work.
  - deleted 6y ago
    [deleted]
  - oh_sigh 6y ago
    The opposite of a call is a neutral or short position, not just a short position.
    - raincom 6y ago
      Ah, a logical answer. Short, long, neutral are contraries.
johnwheeler 6y ago
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.
- bitxbit 6y ago
  This right here is the answer. He couldn’t stomach his unicorn investments going to zero. This gambit sort of worked but his real assets are still illiquid. He’s still need to be able to exit them.
deleted 6y ago
[deleted]
dharma1 6y ago
https://twitter.com/sentimentrader/status/1301914836142612481 https://twitter.com/sentimentrader/status/130191483614261248... "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."
- redisman 6y ago
  I wonder could it be possible that we're experiencing a new kind of bubble caused by the confusing data from all the amateurs entering the market and causing the ML algorithms to think that things are amazing. The real world surely doesn't look amazing at the moment.
  - jachee 6y ago
    It's like an amateur poker player sitting down with WPT pros. The pros don't know how to read the amateurs, who make nominally suboptimal plays, and can be disrupted briefly. All part of the market staying irrational.
    - pfraze 6y ago
      I once sat down to a $2/$4 limit poker game in Vegas. The limit was so low that you knew a maxed pot was unlikely to ever bankrupt you. It’s meant to be for amateurs without much cash for gambling (me). Some guy at the table had figured out that with enough cash you can just max every bet and let the odds dictate his results. Because other players were folding based on the quality of their hand, they were missing opportunities to hit on the river which he got. This devolved the game from reading your opponent to reading the inherent odds of card hits. It’s not the exact same game, but when I think about the market being irrational, I think about that guy. He made the game inherently irrational. EDIT: or, at least, he played it irrationally, causing the usual signals to be removed from play. The table beat him, but since he forced the game into playing the odds, the only effective strategy was to play conservatively. There was no point in trying to read his hand or bluff him.
KKKKkkkk1 6y ago
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?
- fspeech 6y ago
  Softbank is not financial neophyte for sure. See their long term option deal with Citi to sell their Yahoo stake a decade ago. Their investment in BABA is probably the most successful passive investment ever. But they are very aggressive so will also have a lot of failures. I get the feeling that they tried too hard to replicate their BABA success.
  - Daishiman 6y ago
    The good ole regression to the mean.
  - chii 6y ago
    their BABA success is due to luck, but they won't admit it, and instead attempt to replicate it with "skill". This is what happens to people who aren't humble enough to know their success wasn't really due to their own abilities.
- curiousllama 6y ago
  Masayoshi Son has made more money than any single individual in history... But only because he has lost so much, and just made it back. He's just volatility personified.
- alpb 6y ago
  Don't even mention their investment in WireCard https://en.wikipedia.org/wiki/Wirecard_scandal https://en.wikipedia.org/wiki/Wirecard_scandal.
jennyyang 6y ago
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?
- pfortuny 6y ago
  Do they have inside information? If not, they can buy and sell without having to have a specific intent.
  - strstr 6y ago
    Market manipulation is also separately illegal. Though classic pump and dump doesn’t seem possible with amzn.
  - jennyyang 6y ago
    Inside information doesn't have anything to do with market manipulation. The trader who caused the Flash Crash in 2010 was similarly prosecuted for artificially manipulating the markets. If Softbank was buying options to somehow manipulate the rest of their trades, I can't see how this isn't illegal.
    - raincom 6y ago
      2010 flash crash was due to spoofing. Here SB bought call options outright. Nothing illegal about that.
- valuearb 6y ago
  Their purchases were a tiny fraction of all market calls. How is that manipulative?
fakedang 6y ago
I'm surprised it took so long to find out that SoftBank was a whale. When Buffett makes a move, usually the market catches on pretty fast.
- toss1 6y ago
  This is largely due to required SEC filings such as 10Q [1] and 13F [2] reports, etc. The 13F shows the list of stocks they own, down to the share. Successive reports will show bought/sold differences, but this is only a rear-view-mirror view, after the quarter is over, so the actual buy/sell may have been almost 4 months prior [1] https://www.berkshirehathaway.com/qtrly/2ndqtr20.pdf https://www.berkshirehathaway.com/qtrly/2ndqtr20.pdf [2] https://sec.report/Document/0000950123-20-005345/ https://sec.report/Document/0000950123-20-005345/
  - fakedang 6y ago
    But that's expected, except in Buffett's case, you get his positions on the next day itself due to the filing. I wonder if it's because SoftBank is a foreign entity, hence only required to report quarterly results optionally.
simonpure 6y ago
Matt Levine covered this same strategy back in February wrt WSB [0]. 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-posters-pick-the-stocks-now https://www.bloomberg.com/opinion/articles/2020-02-26/reddit...
- smabie 6y ago
  I've been missing Matt Levine. He needs to get back already! Best newsletter on the internet, hands down.
- runeks 6y ago
  From the article: > 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?
  - ezzaf 6y ago
    Sure you could, but that's not how the dealers are (usually) operating. The option is much cheaper than the stock, so when selling a call option you're unlikely to have the entire position covered. From further down the article: "Options are a way to get leverage, too, and can work sort of like an extreme version of the margin loan. If you have $100, you can buy options on $1,000 worth of stock, and a dealer will go out and buy $500 worth of stock to hedge that option." The dealer doesn't own all of the stock they have sold you the option on. So when the stock price goes up, their exposure goes up, and they have to buy more stock to manage it. If you're happy to own the entire position, why sell the call option?
paulpauper 6y ago
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.
- qeternity 6y ago
  This is absolutely the reason. Go look at AAPL skew. Skew doesn’t go negative in response to strong underlying, it goes negative when you have a relentless gamma bid. Go look at the massive volume in single name flows. It’s not the only reason we rallied, but it’s the reason we went parabolic. Would NQs have printed 12500 without SoftBank? Yes. But it wouldn’t have been so aggressive.
bitxbit 6y ago
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.
fukpaywalls 6y ago
There's a fucking paywall on this article! it should be banned from here.
cs702 6y ago
In summary: 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?
- qeternity 6y ago
  1) Shorted dated options have lots of gamma which amplifies the effects of this exponentially. 2) There are very few discretionary investors left, most are index funds. They targeted a few names which have outsized influence on indices. This in turn forces passives to buy those same names in order to keep tracking error low. Which then amplifies the effects from point 1, giving SB pnl which they can lever to repeat the cycle. Source: hf head of quant trading
- Andrex 6y ago
  > What happens if (i.e., when) 1, 2, and 3 unwind? Pop.
- incognition 6y ago
  1. They’re probably ITM from earlier calls and reporting says they wrote OTM calls so that’s gravy. 2. The distribution is probably OTM on the balance and loses. 3. Brokers unwind, make money but not as much as 1 due to cost of hedging. 4. Passives are already tracking and are along for the ride excepting any new capital in. Summary: Market correction while the rich get richer. Working as designed it appears.
mgh2 6y ago
Is there a non-paywalled version of this article?
- mgh2 6y ago
  https://financialpost.com/financial-times/softbank-unmasked-as-nasdaq-whale-that-stoked-tech-rally-before-selloff https://financialpost.com/financial-times/softbank-unmasked-...
disown 6y ago
I'd be interested in proof/data (if it is even possible) rather than "some investment banker claims", etc. 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. What about the nasdaq rally from 2009 to 2020? What that softbank as well? 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. Softbank by itself isn't remotely big enough to move markets for such a long period of time to set a trend.
- christophilus 6y ago
  The analysis covers that. The idea is that options magnified the effect of their billions and set off a chain reaction. When you analyze the flows, they are anomalous. It may not be the reason, but it’s plausible and worth further investigation.
trhway 6y ago
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.
- marketgod 6y ago
  With TSLA it may not work so well because TSLA has had a high short interest rate historically. So actually, after the split, if we see more shorts come in to drive TSLA down, we may get another substantial move up, hence I have $1000 targets for December.
  - brandmeyer 6y ago
    Some fraction of the short interest will choose to cut their losses on the way up. Since that is yet another entry on the buy side of the books, that would act to drive prices up even higher, no?
    - marketgod 6y ago
      The short interest has really gone down for TSLA significantly. It was double what it is now so I don't think short covering should push the market up, I'd presume the people who think Tesla is a fraud are going to get back in now as it is cheaper and maybe even look for a $240 target to add more shorts.
neonate 6y ago
https://archive.is/jnChJ https://archive.is/jnChJ
cced 6y ago
Can some ELI5 what this means? Is this the explanation for why the markets have been exploding in such turbulent times?
- ryanbberger 6y ago
  The short answer: yes, this is partially the reason. Options trading is making a bet that a stock will go up or down. To accomplish this, you buy the rights to sell/buy stock at a given stock price (we call this a strike price). You do not OWN the stock, you borrow it, with the guarantee you can exercise your right to the buy/sell the stock once it hits the strike price. When you trade options, you typically don't buy the right to buy/sell individual stocks, you buy the right to sell 100 at a time. This means if Softbank buys 4bil in options in companies, they now have the risk/reward of 400bil in the market. In order to give Softbank the rights to the stock if they were to exercise their options, banks must back those options with shares. You may see where this is going. By making 4bil in options orders, Softbank has caused banks to be forced to buy 400bil in stocks, pumping the price. TLDR; Softbank forced banks to buy 400bil in stocks, effectively pumping the market
  - smabie 6y ago
    This isn't correct. Option prices are quoted as the price for one share, but you have to pay 100x. The leverage you get from options is the difference between the price of the option and the price of the stock. The total value of the stocks you have the right to buy or sell is called the notational value. Your multiply by a 100 thing isn't at all how this works.
twblalock 6y ago
And the index funds followed right along. Perhaps index funds, by blindly following market trends, amplify bad actors' ability to distort the market. 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.
- MiroF 6y ago
  > And the index funds followed right along. Perhaps index funds, by blindly following market trends, amplify bad actors' ability to distort the market. Well of course index funds follow market trends. How is that at all surprising? They are literally index funds.
  - twblalock 6y ago
    The point is that blindly following market trends, when the market is being manipulated, is not a good thing. Yet it's a core feature of index funds. It's a big potential downside of index funds. In general, the standard retirement investing advice these days is to invest in a portfolio of index funds -- don't bother with active funds, and don't pick individual stocks! People who take that advice probably expect that they are investing in a slice of ownership in companies that will grow over time, not that they are enabling/following along with market manipulation and being suckered into buying overvalued assets. It makes index funds a lot less attractive as a safe investment for normal people.
    - MiroF 6y ago
      I mean, competitive, publicly traded markets like the stocks underling SPY are not manipulated long-term. Index fund investors are not being "suckered." People who get convinced that they can time the market or pay someone else to time the market are the ones who are "suckered." > index funds a lot less attractive as a safe investment for normal people As long as you aren't day trading, I don't see why this volatility ought to even be a concern for normal people. I'm not buying/selling based on 5% shifts in the market on a day-to-day basis.
1A--__--__--1A 6y ago
Thank god for "INSERT INTO blah VALUES (bleh) ON DUPLICATE KEY UPDATE boop = 1". from Corgi
xwdv 6y ago
So what happens next? I unloaded a bunch of tech positions yesterday and am wondering what to do with all the dry powder.
- marktangotango 6y ago
  I'm hoping for a further pull back and oppurtunity to buy. I did not deploy all the capital I would have liked in March/April. Market came back way stronger and quicker than I expected. And the "dead cat bounce" didn't happen, seems we know why now!
iamsanteri 6y ago
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...
jrg123 6y ago
This is market manipulation. 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.

583 points by xoxoy 6y ago

pestkranker 6y ago

Paywalled.

speeder 6y ago
Risky solution of the day but... https://www.zerohedge.com/markets/one-day-after-zero-hedge-ft-unmasks-softbank-call-buying-nasdaq-whale https://www.zerohedge.com/markets/one-day-after-zero-hedge-f...
- seemack 6y ago
  Anyone familiar with zerohedge? I'm not going to make any real judgements but they certainly don't make a good first impression. They repeatedly claim that they reported this a day earlier than FT but don't even provide a link to this supposed report, spelling mistakes throughout... They do make it more tempting to pay for FT though!
  - processing 6y ago
    https://www.zerohedge.com/markets/speculation-emerges-over-identity-mystery-marketwide-call-buyer https://www.zerohedge.com/markets/speculation-emerges-over-i...
    - seemack 6y ago
      Thank you!
bobo_legos 6y ago
https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205?mod=e2tw https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fu... WSJ confirming that report. Doesn't have a ton of details.
awinder 6y ago
Not positive but this appears to be coverage of the same story https://www.google.com/amp/s/www.wsj.com/amp/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205 https://www.google.com/amp/s/www.wsj.com/amp/articles/softba...
- deleted 6y ago
  [deleted]
deleted 6y ago
[deleted]
incomplete 6y ago
https://archive.is https://archive.is

guardiangod 6y ago

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.

fataliss 6y ago
Gotta fuel these flaky startup investments somehow! I always wondered how this company was still alive despite terrible investment track record. I guess they are at least good at financial engineering and market manipulations...
- z3ncyberpunk 6y ago
  Jokes on us, the whole economy is based on exploitation and manipulation!
- netsharc 6y ago
  Yeah, losing a few billion dollars (not sure how many they did lose) is not that bad if you still have several billion dollars to manipulate things with...
Traster 6y ago
It's almost certain the paper value of their investments is up - if you drive $4Bn into a market, the prices are going to go up. The question is whether they can actually extract that value from the market. More likely, they now have a decent paper profit but the first sign of movement out of their position will involve a precipitous drop.

ramoz 6y ago

Zero Hedge has been deemed controversial, but their reporting here is... wow. https://www.zerohedge.com/markets/one-day-after-zero-hedge-ft-unmasks-softbank-call-buying-nasdaq-whale https://www.zerohedge.com/markets/one-day-after-zero-hedge-f...

vajrabum 6y ago
The reason for the controversy is there are indications that Zero Hedge may be an outlet for a state level actor. See here for one perspective. https://newrepublic.com/article/156788/zero-hedge-russian-trojan-horse https://newrepublic.com/article/156788/zero-hedge-russian-tr...
- opportune 6y ago
  This is a really good article. I guess the best way to get top-notch investigative journalism is to personally threaten a journalist
- kaycebasques 6y ago
  Wow, back when I visited ZH I would always be in this cognitively dissonant place where I was getting a lot of value out of the market-related articles and cringing at all the conspiratorial political stuff. I can't believe I never considered the idea that it's sponsored by the Kremlin.
- blahblah3737 6y ago
  read the article, it's not very convincing to be honest. it's a long winded biography of the owner of the site who is bulgarian. the evidence is that the reporting content is right-leaning/conspiratorial and that he is bulgarian basically.
- rapsey 6y ago
  Or maybe they are being framed for calling out the bullshit in other mainstream media.
  - vkou 6y ago

logicslave 6y ago

Hard to imagine what their end goal for this could have been

deleted 6y ago
[deleted]
gwd 6y ago
Money laundering / plausibly deniable embezzlement? 1. Inform people to whom you want to transfer money that you're about to push the market up. They buy a wide range of tech stocks (or other derivatives that rely on tech stocks) 2. Make some insane trades that push up tech stocks for a few days 3. Your targets sell, taking a hefty profit You've effectively transferred money out of your hedge fund to these other people; if the "area of effect" is large enough, it should be difficult to tell who was the target. Don't know if this is efficient or plausible.
- srtjstjsj 6y ago
  If it's that easy, just do it for yourself to profit.
  - dllthomas 6y ago
    I doubt gwd has access to a tremendous pile of other people's money to experiment with, other considerations aside.
- raincom 6y ago
  Laundering is needed when money is dirty. In this case, money is not dirty. Embezzlement is a stupid move on the part of any billionaires. They can collect management fees instead, and be safe.
raesene9 6y ago
I'll take a wild assed guess at it, what follows is pure speculation. Many of Softbank's portfolio companies are not doing well (e.g. Uber, WeWork), and they're starting to get a bit anxious about whether they'll be able to show the returns that investors are looking for. So they've turned to risky strategies which, in the short term, could show a high return on investment to keep their investors happy. Of course, when/if this unwinds, they could be in serious trouble, but that falls into "problems for another day" I'd usually say that no serious investment company could be this shortsighted, but after seeing what Wirecard did, I'm no longer so sure :)

dionian 6y ago

I dont trust news sources that aren't deemed controversial, these days.

Proziam 6y ago
I'm struggling to bring to mind a 'reputable' source that I haven't caught in some heinous misinformation in the past couple of years. Potentially worse is that social media companies are censoring opinions they disagree with. I am genuinely concerned about how people will stay informed in the future.
- pokstad 6y ago
  Try out https://www.allsides.com/unbiased-balanced-news https://www.allsides.com/unbiased-balanced-news. I find it to be a decent evaluator of accuracy and bias.
  - Proziam 6y ago
    It's a useful aggregator to be sure. Unfortunately, it doesn't solve censorship. Example: I was trying to research the current events in Kenosha. Naturally, there's a 'diverse' set of views on the subject matter, so I tried to just watch the videos of what happened and judge for myself. When I tried to send what I found to someone else, some of the videos magically disappeared. Of course, the (very) edited versions of those videos with commentary added on top are still available.
    - nitrogen 6y ago
      Something similar would happen years ago if you posted something from Wikileaks to Facebook (long before Wikileaks lost its reputation). You'd get a mysterious error after a delay, when any other site would post fine. I think HN does the same thing for different reasons -- mysterious error for suspected spam from new users or something like that.
    - Answerawake 6y ago
      You should set up youtube-dl on your machine so you can at least download the videos before they disappear. This tool can handle hundreds of websites and has come in handy so many times. One of the many projects I started and never finished was an auto Youtube downloader that you automatically detect when I watch a new Youtube video and archive it to a local NAS. I got tired of going back to an old bookmarked video only to find that it has been deleted either by the author or due to a copyright claim.

Radle 6y ago

That's a surprise. I thought markets are to big for a single actor to make such moves.

Guest42 6y ago
I think the analysis is so granular (and sometimes desperate for signal) that individual movers can have plenty of influence. Also, the volume of non-retail trades is low which amplifies larger trades. (My theories at least)
- elliekelly 6y ago
  The end of August is also the time when trading volume tends to be at its absolute lowest, even among institutional investors.
- MiroF 6y ago
  > Also, the volume of non-retail trades is low which amplifies larger trades. Source? I thought most volume was non-retail.
  - Guest42 6y ago
    Lower than usual. I should’ve been more specific.
xt00 6y ago
The volumes on options are not all that large typically. So many people will put a sell to open at a high price to see if somebody really wants the option.. sometimes people will bite and it causes a big jump in the option price.. once that happens it starts other people jumping in as well (and algorithms). But you can sometimes see options that have volumes of less than 10 contracts in a day -- sometimes 0 for non popular stocks. So if softbank was buying big quantities daily that could easily run up the price. And the wild thing is that if you see a big jump in call option interest way out of the money, then people who are wondering about the underlying stock think, hmm, maybe people are aware of some upside on this stock.. I think I'll buy some more shares of tesla or whatever because the call option behavior is so bullish. So basically if you want a stock to move one direction or another you probably could manipulate most easily by buying large quantities of options on one side or the other in such a way that people think you know something that you don't.

kyle_morris_ 6y ago

https://archive.is/h8zfx https://archive.is/h8zfx 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.

iammru 6y ago

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.

ganoushoreilly 6y ago
> https://newrepublic.com/article/156788/zero-hedge-russian-tr.. https://newrepublic.com/article/156788/zero-hedge-russian-tr.... Yep it looks like yolobro /r/wallstreetbets is their inspiration
itsoktocry 6y ago
>from their bad investments. Do they have any good investments? They were heavy into WeWork and WireCard. They have about $10 billion into Uber. Lots of small oddballs like investing in Wag at $300MM valuation. Lost a bunch buying bitcoin at the peak. Now this.
- xenospn 6y ago
  Wag wired those $300M back a few months ago.
- blueline 6y ago
  they used to own 100B of alibaba i have to assume bytedance has/will work out favorably for them.. maybe im wrong there
- djmobley 6y ago
  It was a $300m investment for a ~45% stake in Wag. Absolute madness.
- iav 6y ago
  Unlike VC funds, SoftBank releases full accounting of the Vision fund quarterly, so this question is entirely answered here: https://group.softbank/system/files/pdf/ir/presentations/2020/investor-svf_q1fy2020_01_en.pdf https://group.softbank/system/files/pdf/ir/presentations/202... They had 6 full exits generating $5B of gains, plus another dozen companies went public and the mark to market on the whole is a $3B gain. I don’t see that they’ve ever invested in Bitcoin. The remaining portfolio is down about $5B on $60B invested - I have a lot of questions about how they are marking those securities, but surely it’s similar to the VC model of “Mark to the last third party investment, even if we led the investment, unless something really bad happened”. That’s where the WAG and WeWork losses would be. So all in they still think they are in the black by $3B on $80B invested. Even if they are mis marking the private book by 20%, the fund would generate a 0.9x return or disappointing but not a complete disaster.

synaesthesisx 6y ago

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...

davedx 6y ago
Time to load on up SQQQ!
itsoktocry 6y ago
>SoftBank is responsible for the spike in gamma across the board, dumping massive amounts of money into OTM calls. 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_infinity_call_gamma_squeeze/ https://old.reddit.com/r/stocks/comments/hk7y1o/tesla_infini...
- missedthecue 6y ago
  Looks like SoftBank bought $4 billion in options over the summer. Retail accounts purchase $34 billion per month in options so I'm not buying into the theory that SoftBank is to blame for this.
  - mylons 6y ago
    source on retail investors? I also believe retail is having a larger effect, I just haven't seen this number before.
  - arcticbull 6y ago

FiReaNG3L 6y ago

Stock market feels like a big whole gambling machine at the moment, between QE and manipulation of this sort...

johnwheeler 6y ago
"at the moment"?
lotsofpulp 6y ago
I feel the opposite. US politicians across both parties have an incentive to keep the market indices going up and to the right. And so it will since politicians have control of the money supply.
- duxup 6y ago
  " US politicians across both parties have an incentive to keep the market indices going up and to the right" Isn't that always the case? And does it make a difference? I feel like we see plenty of situations where politicians would not want to see the market crash, it still does... I don't doubt politics plays a part, but I'm not at all sure they've got switches that work exactly as desired all the time either...
  - lotsofpulp 6y ago
    If your time horizon is more than a couple years, then it has worked. They have the ability to create money and purchase bonds, equity, and simply give companies cash if needed. And they have. The biggest variable they don’t have control over is the best value or expected future value is the USD. Also, the invested-ness of US politicians is not just due to them owning stocks, but due to the people voting for them being invested in them by way of invested retirement funds and indirect exposure via government employee pensions.
    - duxup 6y ago
      >Also, the invested-ness of US politicians is not just due to them owning stocks, but due to the people voting for them being invested in them by way of invested retirement funds and indirect exposure via government employee pensions. That's also a permanent thing ...

jeffreyrogers 6y ago

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).

xmprt 6y ago
If you bought puts for the last few months then you probably lost a lot of money. I don't think inversing them would actually work.
- deleted 6y ago
  [deleted]
- oh_sigh 6y ago
  The opposite of a call is a neutral or short position, not just a short position.
  - raincom 6y ago
    Ah, a logical answer. Short, long, neutral are contraries.

johnwheeler 6y ago

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.

bitxbit 6y ago
This right here is the answer. He couldn’t stomach his unicorn investments going to zero. This gambit sort of worked but his real assets are still illiquid. He’s still need to be able to exit them.

deleted 6y ago

[deleted]

dharma1 6y ago

https://twitter.com/sentimentrader/status/1301914836142612481 https://twitter.com/sentimentrader/status/130191483614261248... "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."

redisman 6y ago
I wonder could it be possible that we're experiencing a new kind of bubble caused by the confusing data from all the amateurs entering the market and causing the ML algorithms to think that things are amazing. The real world surely doesn't look amazing at the moment.
- jachee 6y ago
  It's like an amateur poker player sitting down with WPT pros. The pros don't know how to read the amateurs, who make nominally suboptimal plays, and can be disrupted briefly. All part of the market staying irrational.
  - pfraze 6y ago
    I once sat down to a $2/$4 limit poker game in Vegas. The limit was so low that you knew a maxed pot was unlikely to ever bankrupt you. It’s meant to be for amateurs without much cash for gambling (me). Some guy at the table had figured out that with enough cash you can just max every bet and let the odds dictate his results. Because other players were folding based on the quality of their hand, they were missing opportunities to hit on the river which he got. This devolved the game from reading your opponent to reading the inherent odds of card hits. It’s not the exact same game, but when I think about the market being irrational, I think about that guy. He made the game inherently irrational. EDIT: or, at least, he played it irrationally, causing the usual signals to be removed from play. The table beat him, but since he forced the game into playing the odds, the only effective strategy was to play conservatively. There was no point in trying to read his hand or bluff him.

KKKKkkkk1 6y ago

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?

fspeech 6y ago
Softbank is not financial neophyte for sure. See their long term option deal with Citi to sell their Yahoo stake a decade ago. Their investment in BABA is probably the most successful passive investment ever. But they are very aggressive so will also have a lot of failures. I get the feeling that they tried too hard to replicate their BABA success.
- Daishiman 6y ago
  The good ole regression to the mean.
- chii 6y ago
  their BABA success is due to luck, but they won't admit it, and instead attempt to replicate it with "skill". This is what happens to people who aren't humble enough to know their success wasn't really due to their own abilities.
curiousllama 6y ago
Masayoshi Son has made more money than any single individual in history... But only because he has lost so much, and just made it back. He's just volatility personified.
alpb 6y ago
Don't even mention their investment in WireCard https://en.wikipedia.org/wiki/Wirecard_scandal https://en.wikipedia.org/wiki/Wirecard_scandal.

jennyyang 6y ago

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?

pfortuny 6y ago
Do they have inside information? If not, they can buy and sell without having to have a specific intent.
- strstr 6y ago
  Market manipulation is also separately illegal. Though classic pump and dump doesn’t seem possible with amzn.
- jennyyang 6y ago
  Inside information doesn't have anything to do with market manipulation. The trader who caused the Flash Crash in 2010 was similarly prosecuted for artificially manipulating the markets. If Softbank was buying options to somehow manipulate the rest of their trades, I can't see how this isn't illegal.
  - raincom 6y ago
    2010 flash crash was due to spoofing. Here SB bought call options outright. Nothing illegal about that.
valuearb 6y ago
Their purchases were a tiny fraction of all market calls. How is that manipulative?

fakedang 6y ago

I'm surprised it took so long to find out that SoftBank was a whale. When Buffett makes a move, usually the market catches on pretty fast.

toss1 6y ago
This is largely due to required SEC filings such as 10Q [1] and 13F [2] reports, etc. The 13F shows the list of stocks they own, down to the share. Successive reports will show bought/sold differences, but this is only a rear-view-mirror view, after the quarter is over, so the actual buy/sell may have been almost 4 months prior [1] https://www.berkshirehathaway.com/qtrly/2ndqtr20.pdf https://www.berkshirehathaway.com/qtrly/2ndqtr20.pdf [2] https://sec.report/Document/0000950123-20-005345/ https://sec.report/Document/0000950123-20-005345/
- fakedang 6y ago
  But that's expected, except in Buffett's case, you get his positions on the next day itself due to the filing. I wonder if it's because SoftBank is a foreign entity, hence only required to report quarterly results optionally.

simonpure 6y ago

Matt Levine covered this same strategy back in February wrt WSB [0]. 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-posters-pick-the-stocks-now https://www.bloomberg.com/opinion/articles/2020-02-26/reddit...

smabie 6y ago
I've been missing Matt Levine. He needs to get back already! Best newsletter on the internet, hands down.
runeks 6y ago
From the article: > 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?
- ezzaf 6y ago
  Sure you could, but that's not how the dealers are (usually) operating. The option is much cheaper than the stock, so when selling a call option you're unlikely to have the entire position covered. From further down the article: "Options are a way to get leverage, too, and can work sort of like an extreme version of the margin loan. If you have $100, you can buy options on $1,000 worth of stock, and a dealer will go out and buy $500 worth of stock to hedge that option." The dealer doesn't own all of the stock they have sold you the option on. So when the stock price goes up, their exposure goes up, and they have to buy more stock to manage it. If you're happy to own the entire position, why sell the call option?

paulpauper 6y ago

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.

qeternity 6y ago
This is absolutely the reason. Go look at AAPL skew. Skew doesn’t go negative in response to strong underlying, it goes negative when you have a relentless gamma bid. Go look at the massive volume in single name flows. It’s not the only reason we rallied, but it’s the reason we went parabolic. Would NQs have printed 12500 without SoftBank? Yes. But it wouldn’t have been so aggressive.

bitxbit 6y ago

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.

fukpaywalls 6y ago

There's a fucking paywall on this article! it should be banned from here.

cs702 6y ago

In summary: 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?

qeternity 6y ago
1) Shorted dated options have lots of gamma which amplifies the effects of this exponentially. 2) There are very few discretionary investors left, most are index funds. They targeted a few names which have outsized influence on indices. This in turn forces passives to buy those same names in order to keep tracking error low. Which then amplifies the effects from point 1, giving SB pnl which they can lever to repeat the cycle. Source: hf head of quant trading
Andrex 6y ago
> What happens if (i.e., when) 1, 2, and 3 unwind? Pop.
incognition 6y ago
1. They’re probably ITM from earlier calls and reporting says they wrote OTM calls so that’s gravy. 2. The distribution is probably OTM on the balance and loses. 3. Brokers unwind, make money but not as much as 1 due to cost of hedging. 4. Passives are already tracking and are along for the ride excepting any new capital in. Summary: Market correction while the rich get richer. Working as designed it appears.

mgh2 6y ago

Is there a non-paywalled version of this article?

mgh2 6y ago
https://financialpost.com/financial-times/softbank-unmasked-as-nasdaq-whale-that-stoked-tech-rally-before-selloff https://financialpost.com/financial-times/softbank-unmasked-...

disown 6y ago

I'd be interested in proof/data (if it is even possible) rather than "some investment banker claims", etc. 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. What about the nasdaq rally from 2009 to 2020? What that softbank as well? 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. Softbank by itself isn't remotely big enough to move markets for such a long period of time to set a trend.

christophilus 6y ago
The analysis covers that. The idea is that options magnified the effect of their billions and set off a chain reaction. When you analyze the flows, they are anomalous. It may not be the reason, but it’s plausible and worth further investigation.

trhway 6y ago

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.

marketgod 6y ago
With TSLA it may not work so well because TSLA has had a high short interest rate historically. So actually, after the split, if we see more shorts come in to drive TSLA down, we may get another substantial move up, hence I have $1000 targets for December.
- brandmeyer 6y ago
  Some fraction of the short interest will choose to cut their losses on the way up. Since that is yet another entry on the buy side of the books, that would act to drive prices up even higher, no?
  - marketgod 6y ago
    The short interest has really gone down for TSLA significantly. It was double what it is now so I don't think short covering should push the market up, I'd presume the people who think Tesla is a fraud are going to get back in now as it is cheaper and maybe even look for a $240 target to add more shorts.

neonate 6y ago

https://archive.is/jnChJ https://archive.is/jnChJ

cced 6y ago

Can some ELI5 what this means? Is this the explanation for why the markets have been exploding in such turbulent times?

ryanbberger 6y ago
The short answer: yes, this is partially the reason. Options trading is making a bet that a stock will go up or down. To accomplish this, you buy the rights to sell/buy stock at a given stock price (we call this a strike price). You do not OWN the stock, you borrow it, with the guarantee you can exercise your right to the buy/sell the stock once it hits the strike price. When you trade options, you typically don't buy the right to buy/sell individual stocks, you buy the right to sell 100 at a time. This means if Softbank buys 4bil in options in companies, they now have the risk/reward of 400bil in the market. In order to give Softbank the rights to the stock if they were to exercise their options, banks must back those options with shares. You may see where this is going. By making 4bil in options orders, Softbank has caused banks to be forced to buy 400bil in stocks, pumping the price. TLDR; Softbank forced banks to buy 400bil in stocks, effectively pumping the market
- smabie 6y ago
  This isn't correct. Option prices are quoted as the price for one share, but you have to pay 100x. The leverage you get from options is the difference between the price of the option and the price of the stock. The total value of the stocks you have the right to buy or sell is called the notational value. Your multiply by a 100 thing isn't at all how this works.

twblalock 6y ago

And the index funds followed right along. Perhaps index funds, by blindly following market trends, amplify bad actors' ability to distort the market. 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.

MiroF 6y ago
> And the index funds followed right along. Perhaps index funds, by blindly following market trends, amplify bad actors' ability to distort the market. Well of course index funds follow market trends. How is that at all surprising? They are literally index funds.
- twblalock 6y ago
  The point is that blindly following market trends, when the market is being manipulated, is not a good thing. Yet it's a core feature of index funds. It's a big potential downside of index funds. In general, the standard retirement investing advice these days is to invest in a portfolio of index funds -- don't bother with active funds, and don't pick individual stocks! People who take that advice probably expect that they are investing in a slice of ownership in companies that will grow over time, not that they are enabling/following along with market manipulation and being suckered into buying overvalued assets. It makes index funds a lot less attractive as a safe investment for normal people.
  - MiroF 6y ago
    I mean, competitive, publicly traded markets like the stocks underling SPY are not manipulated long-term. Index fund investors are not being "suckered." People who get convinced that they can time the market or pay someone else to time the market are the ones who are "suckered." > index funds a lot less attractive as a safe investment for normal people As long as you aren't day trading, I don't see why this volatility ought to even be a concern for normal people. I'm not buying/selling based on 5% shifts in the market on a day-to-day basis.

1A--__--__--1A 6y ago

Thank god for "INSERT INTO blah VALUES (bleh) ON DUPLICATE KEY UPDATE boop = 1". from Corgi

xwdv 6y ago

So what happens next? I unloaded a bunch of tech positions yesterday and am wondering what to do with all the dry powder.

marktangotango 6y ago
I'm hoping for a further pull back and oppurtunity to buy. I did not deploy all the capital I would have liked in March/April. Market came back way stronger and quicker than I expected. And the "dead cat bounce" didn't happen, seems we know why now!

iamsanteri 6y ago

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...

jrg123 6y ago

This is market manipulation. 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.