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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 mone
by 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 agoTime 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 agoLooks 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 agosource on retail investors? I also believe retail is having a larger effect, I just haven't seen this number before.
- arcticbull 6y agoIf that’s true, that’s 34B in the total options market, this 4B is targeted at like 5 companies.
- mightytravels 6y agoKeep in mind that 4 billion (likely Softbank invested more) means 100x in stocks. i.e. a 10 billion investment in call options 'generates' 1 trillion in extra market cap (because of dealers hedging). That is 1/3 of AMZN or 2x TSLA and so on at current (not March) valuations. Such concentrated volume CAN move big stocks and in turn indexes. Even if the market let go a bit now - Softbank has literally cornered the market for so long - they still make a killing in the process.
- encoderer 6y agoThe concept of notional value is more complicated than that. Dealers don’t hedge the full notional value they hedge only enough to cover the delta and gamma on the option.
- mightytravels 6y agoTrue but at the current high implied volatility of the affected symbols the delta/ gamma has been high —> lots of hedging needed. Big loop.
- arcticbull 6y agoCorrect, but not 100:1 hedging.
- rocho 6y agoIn addition to that, they match orders in real-time, so they might not even need to hedge partially because they have offsetting positions coming in.
- unwoundmouse 6y agohow are retail options different from softbanks options. if there are 34 b of retail calls purchased that would dwarf softbank if done in the same time period
- foota 6y ago
- kolbe 6y agoRetail buys that much total, not net. And retail mostly buys puts as a hedge to their existing position. SoftBank introduced $4b of premium directed in the same direction for new deltas.
- siruncledrew 6y agoTSLA calls have been ridiculous the last few months. Buy >50% OTM calls with expirations 1-2 months out and still make money. No wonder it looks like free money.
- synaesthesisx 6y agoThere were multiple instances where I bought absurdly OTM TSLA weekly calls (sometimes > +200% or as far as I could out) at open, and sold as soon as an hour later for profit. Earlier this week, I bought Tesla $800C’s despite the stock trading in the 400’s and sold for 300% returns later that day. I’m not one to day trade, but when opportunities like this are on the table it’s hard to resist.
- SZJX 6y agoYeah though if somebody bought a high leverage call on Tesla Thursday they might have lost it all in a day. The thing is it's hard to predict when the rally will end. You can only make predictions with some, or maybe increasing, level of certainty but it's still a bet.
- hinkley 6y agoHasn't Elon been complaining about short sellers for a long time? Shorts can do fucked up things to trade volumes when it comes time to pay up.
- maest 6y agoEvery public company CEO complains about shorts. It's because short sellers depreciate the stock value by a. creating more supply b. signaling the stock price is overvalued. Both of these things annoy those whose compensation is strongly tied to stock price performance. > time to pay up. I'm not sure what you mean by this. Are you talking about short squeezes?
- hinkley 6y agoSqueezing is what happens to short sellers who are wrong. I suppose "when they get squeezed" would have been more accurate, but I was failing to put that into words.
- maest 6y ago"wrong" is a very loaded word to use in this context and it's not clear what you mean. Wirecard short sellers were "right" (as in their thesis was corect) for many years before the stock price reflected their beliefs. Some of them probably got squeezed (and quite a few got in trouble with various financial authorities).
- samatman 6y agoIt's either a bad bet or it isn't. This encompasses both direction and duration, so getting one of them wrong, is still wrong.
- maest 6y agoI see the appeal in using the return as a way of judging the bet, but I think it's too simplistic. Reason #1: In investing, you can do everything right and still lose money. This is because there is never certitude, and you can only play the odds. So, if you make a bet with a 90% chance of winning, and yet you still lose, was that a bad bet? Reason #2: Most people like to think stock prices reflect reality somehow and the mechanism through which that happens is people buying or selling stock to reach price equilibrium. So, in that sense, a good bet would be one that pushes the price towards reality.
- 0898 6y agoWhat does “gamma” mean in this context?
- encoderer 6y agohttps://www.investopedia.com/terms/g/greeks.asp https://www.investopedia.com/terms/g/greeks.asp
- oarfish 6y ago404
- encoderer 6y agoWorks for me? Maybe they have some terrible geosniffing.
- edoceo 6y agoIt's something odd, on that site I've follow some links (all on domain) then used the browser back button and land on a 404
- srtjstjsj 6y agoThe server is flaky. You can also try https://www.investopedia.com/trading/using-the-greeks-to-understand-options/ https://www.investopedia.com/trading/using-the-greeks-to-und...
- iso8859-1 6y agohttps://archive.is/Dj6Od https://archive.is/Dj6Od
- itsoktocry 6y agoThe basic mechanism of this, in my understanding is: 1. Buy underlying shares. 2. Buy calls on those shares. 3. Market makers who sell you those calls have to buy shares in the underlying stock to hedge (they run balanced books) 4. Demand for stock rises, stock price and calls increase in value 5. Use proceeds to buy more stock and options. Rinse, repeat. The "gamma squeeze" (which is how much the option value changes in relation to underlying stock price) refers to the part where options sellers have to hedge by buying stock. Essentially, the very act of buying calls in volume increases their value, allowing you to buy more and drive the price upwards.
- youeseh 6y agoThey must have not poured any money into Slack calls.
- naveen99 6y agoOptions 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.
- smallnamespace 6y agoA particular MM might lay off the call risk by purchasing a call, but all they're doing is passing the risk on to a different MM. There aren't that many natural vol sellers (hedge funds, mostly? and implicitly the Fed), so MMs as a group have the function of converting implied vol into realized vol via their delta hedging activities.
- naveen99 6y agoshares are just long dated calls. There are plenty of routine covered call writers running the wheel from wealth managers to boomers like my dad. But you are right that to you need to have the capital to face early assignment if you are short and the capital to take delivery if you are long volatility and liquidity is low relatively.
- PhantomGremlin 6y agoAs a mm you don’t have to buy the underlying to cover short calls Yes you're absolutely right. The beauty of being a market maker is you only need to hedge across the entirely of your exposure to a particular equity. The more different options you sell on a particular equity, the easier it becomes to hedge your net exposure.
- mam2 6y agoBut 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.
- fakedang 6y agoI think it's safe to say that SoftBank was the trigger, by buying up the meme stocks that are relatively safe bets (Tesla, Amazon, etc), which WSB/Robinhood traders had their eyes on. The Tesla/Amazon traders amplified the signal, and their gains posted everywhere on Twitter, Insta, Reddit, etc. encouraged people to plow more money into the markets, especially in the direction of the meme stocks. Then as S&P started gaining, people noticed and just continued plowing money into the index. Which is why outside of Nasdaq, tech and S&P, there are hardly any movements in the market. Buying options is still visibility, encouraging would-be traders to register on Robinhood and buy some amount of stock. For instance, my old college mate, a current PhD candidate, joined Robinhood and started trading around March. And of course, when he asked me for recommendations, I told him to play safe and go with the S&P stocks and resilient tech stocks. Then of course, he went full on WSB mode, and now he's "eating tendies while his wife is hanging out with her boyfriend".
- vkou 6y agoI wouldn't put both Tesla and Amazon in the category of "Meme stocks that are relatively safe bets". Amazon's not a meme, and Tesla's not a safe bet.
- e_dv1 6y agoThey both have in common that they are a technology stock with a familiar name, particularly ones that have had a very good stock market run in the last 10 years. I agree though that due to what appears to be a bubble, these investments aren't that safe at the moment. It appears that these type of stocks have benefited recently by retail investors entering the market and piling in. ( https://thehill.com/policy/finance/510796-are-trading-apps-propping-up-markets https://thehill.com/policy/finance/510796-are-trading-apps-p... -- though, as the article points out, the Robinhood investor bubble is smaller than the effect of the Fed's QE etc. ) Under normal valuation, Tesla at this point I don't think would be considered "speculative" -- risky, but not as risky as some. But a P/E ratio of 1000+ even after this recent dip is IMHO pretty difficult to justify. r/wallstreetbets is pretty unreal to me -- many people are focusing on high-risk options on these heavily valued stocks, and (by the comments) appear to be putting a lot of their "eggs" in only one or two "baskets", to use the popular phrase. It's not ending well for some of them, judging from some of the posts.
- dharma1 6y agoSo what popped the bubble?
- techdevangelist 6y agoI think it’s interesting it popped 24 hours prior to this story, like reporters reaching out for comment triggered a change of strategy. Pure speculation of course, the holiday weekend tends to cause sell offs as well.
- deleted 6y ago[deleted]
- paulpauper 6y agoEntertaining 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.
- marketgod 6y agoYeah seriously. If someone knew why stocks are failing they would be rich. Similarly, why they are rising. The only reason is someone is buying and someone is selling, any other reason is to get clicks. Yesterday's drop you could see it coming 5-days ago but if you had gone in 5-days ago you would not be making money today, so it's hard to just time it that well. RSI was high, volume was drying, many other indicators. Edit: To add let's not forget there was a huge run on Tech so everyone is re balancing. This is a BTD opportunity.
- abduhl 6y agoThe standard response to anyone who posts something like this is still “post positions or stfu,” correct?
- edoceo 6y agoNot here. And if you try that on WSB you'll need more name-calling.
- marketgod 6y agoHere were my positions yesterday. I got hit up on AAPL/TSLA which were being held from a day earlier. However, during the market this is what I did: executed: BTO SPY 2020-Sep-09 340 Put @ 2.39 DAY executed: BTO SPY 2020-Sep-09 340 Put @ 2.72 DAY executed: STC SPY 2020-Sep-09 340 Put @ 2.90 DAY At peak it was 40%, but I just needed the 10% to make up all my losses. Then I got onto calls: executed: BTO SPY 2020-Sep-09 350 Call @ 1.82 DAY Were up 25% today but I held them as the market is still strong.
- cdiamand 6y agoThe last few months have been pretty crazy. I've been tracking WSB's most commented stocks as a sideproject - https://topstonks.com 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.
- deleted 6y ago[deleted]
- xmprt 6y agoThat's surprising given the conventional wisdom that you're supposed to inverse WSB. If inverse WSB isn't working then that means something really weird is happening.
- hbosch 6y agoAh yes, but the pros know you always inverse the inverse.
- pantalaimon 6y agoGood old stone trick.
- resist_futility 6y agoa broken clock is always right twice a day
- thrav 6y agoInverse the gain porn —- Don’t buy TSLA on the day everyone is posting screenshots of their $4M accounts —- Ride the wave of the self-fulfilling DD.
- arcticbull 6y agoThat was terrible advice until, well, yesterday. It's been a straight line rocket ship to the moon. Each and every gain porn post would have been a solid entry until yesterday.
- fullshark 6y agoAssuming 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?
- yesplorer 6y agoThat will be illegal because that's market manipulation.
- fullshark 6y agoSo you can do it once? Or do you believe the SEC is going to come down on SoftBank here?
- nuclearnice1 6y agoValuation? At some point the other holders of TSLA & GAFA sell.
- tarsinge 6y agoAs 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. Edit: punctuation
- WrtCdEvrydy 6y agoThe stock market is just hysteria fueled by 401k retirement funds.
- hinkley 6y agoYou can find plenty of people who will argue vehemently that it isn't legalized gambling on top of a pyramid scheme. One that can collapse faster than you can say "bank run". We were talking about banks 'making money' by giving out loans the other day. The banks actually have collateral and the fractional reserve. The only 'money' in the stock market is during active trading. Every penny of it leaves after the last trade is settled. At night the Dow is only worth the liquidation value of the companies (and that's if there are only common shares, otherwise forget it), and that's a smaller fraction than either the collateral or the fractional reserve banks maintain. Let alone both together.
- ClumsyPilot 6y agofractional reserve is an outdated myth, read "Money creation in the modern economy" by the Bank of England https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- blackearl 6y agoI don't know how much or how little influence things like Robinhood and WSB have but it sure is entertaining to read about. I'm just hoping my conservative retirement investments don't get tanked for the lols
- hinkley 6y agoBuffet 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.
- esoterica 6y ago> He seems to care whether he makes money from making good choices versus brand recognition. No, no, no he doesn't. He has to be subtle so people don't realize what he's doing and pile in ahead of him and drive up the price before he has a chance to build up a position. It has nothing to do with "caring" about how he makes his money.
- ramzyo 6y agoGenuinely curious, has Buffett said this before in an interview somewhere or have you asked him personally? OP wrote “seems to,” but your response suggests more confidence.
- valuearb 6y agoHe has been quoted numerous times about avoiding having people front-run him over the last 50+ years. He negotiated special disclosure rules with the SEC at one point to avoid disclosing new positions quickly, IIRC.
- Red_Leaves_Flyy 6y agoWould love a source on buffets disclosure rules.
- easton 6y ago
- Mayzie 6y agoI really wish I knew enough about the stock market to understand your comment, but no matter how much I try, it still seems to convoluted and messy. Is there a good resource out there to help people like me who are an absolute beginner?
- antoineMoPa 6y agoYou mean like investopedia?
- redorb 6y agoTasty trade can teach you a lot of the basics... Start slow (please) with money you're prepared to lose
- ra7 6y agoThis article is mostly about options trading. If you take a basic options course and learn about greeks, some of it will start to make sense. Tasty Trade and TD Ameritrade offer free courses, though you might need to open an account for the latter.
- jelling 6y agoJust in case anyone thinks of signing up for TDA, they have terrible software and they are also being merged into Schwab soon. I would look elsewhere.
- MiroF 6y agoThese people are gambling and these comments are full of survivorship bias. Just passive invest, don't try to time it.
- deleted 6y ago[deleted]
- mrlala 6y ago>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... I choose not to participate. It's broken as all fuck and I'm not going to be a part of it.
- maest 6y ago> basically been free money for the last several months 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.
- MiroF 6y agoPeople are just ill-informed about markets in general, comments like this make it pretty obvious. "Free money" in a publicly traded market, yeah sure. "Anyone could have seen that fall coming", again, yeah sure.
- elevenoh 6y agoExactly. 'Can you please not confidently project what is at best hindsight-bias? This isn't a palto alto meetup aka signalling-fest'
- jb775 6y agoIsn't this considered market manipulation?
- z3ncyberpunk 6y agoNo one has any delusions as to how broken it is. The stock market is a racket to make those with wealth and power more wealthy and powerful. It's what happens when we feed capitalism and make money our worshipped idol. The YComb crowd is more often than not far too blind to or care about that though, too busy chasing shiney startups
- arcticbull 6y agoI've been making a solid salary selling near the money 0.3 delta S&P futures options (puts) 3X weekly. Let's see if the party continues :)
- coffeemaniac 6y agoThis will work for a while until it blows up your whole account! Be careful.
- esdfasdf 6y agoHow did this strategy fare during the last couple days though? Wouldn't weeks or months of profit have been wiped out? Though I guess if it's done for a long enough time it's probably ok
- arcticbull 6y agoYeah I’d built up a sufficient buffer, and suspected a correction was coming as the VIX and S&P have been rising together for the last few days. I bought puts 2 days ago instead of selling them. Even if I hadn’t, the last few days would have taken out 25% of my strategy gains YTD. However as a put seller I’d have rolled them down and out, repeatedly, until they expire OTM. If you lack the cojones for such a mad strategy haha, you can always sell put credit spreads to define your risk at the cost of reducing your return.
- morpheos137 6y agoSo 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.
- deleted 6y ago[deleted]
- MiroF 6y ago> taking speculative positions It's hard to define what a speculative position is. Incentivizing buying and holding would just be intentionally make markets illiquid, which a. let's bigger players take larger profits more easily and b. leads to inefficient pricing
- morpheos137 6y agoThere is no reason why efficient pricing of all assets is socially desirable. Efficient pricing may have a cost. Housing is a relatively illiquid market on a local basis. The way to make it more liquid would be to have people buy and sell houses more frequently. Sure we might have a finer grained understanding of what a given house is "really" worth at any given moment but what good is there in that information? Likewise what social good (as opposed to good for the individual speculator) is there in shares of companies changing hands easily and frequently? Liquidity has a cost. The cost of liquidity is instability (volatility) and short termism. Fractional ownership of a company should be a long term undertaking. Not a speculative position. Otherwise how can good corporate governance be incentivized if owners can jump ship at a moment's notice with essentially no cost? How can debacles like Boeing engineering failures be avoided when all that matters is quarterly appearances?
- deleted 6y ago
- elevenoh 6y ago>but it’s basically been free money for the last several months. What does that even mean... lol Rise != 'free money'.
- shmoogy 6y agoBuying monthlies / leaps has been free money the past few months.
- jquery 6y agoOnly with the benefit of hindsight. I made significant money the past few months trading, but I would be a fool if I claimed it wasn’t without significant financial risk.
- SwimSwimHungry 6y agoThis is the correct and sane response. Otherwise, everyone thinks they are financial geniuses, until they lose their shirts.
- nkurz 6y agoThe 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?
- quietthrow 6y agoI am genuinely curious about your response but I can’t understand it. Can you please translate into plain English?
- stwrong 6y agoI do not understand why market makers "have" to buy for OTM option volumes. Sorry I am a stocks noob but losing blood these past two days. Any help is appreciated.
- nkurz 6y agoI'm still learning too, but the short answer is that the seller of the options needs to manage their risk if the option is exercised. If you sell a call, you are promising to provide a stock on demand at a particular price. The most straightforward way to ensure that you are able to sell a stock in the future is to be holding the stock now. If you don't already have enough of the stock in your portfolio, you need to buy it. A longer but excellent answer is here: https://youtu.be/9eDqmOPSs9Y?t=908 https://youtu.be/9eDqmOPSs9Y?t=908
- Oricle 6y agoYup, I've 10x my money in 2 years trading between amd, Tsmc & btc. I've noticed every 2,3 weeks on the Friday, a few hours before market close they will crash, has they did yesterday. They all recover next week. Rinse repeat