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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 th

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
If that’s true, that’s 34B in the total options market, this 4B is targeted at like 5 companies.
mightytravels 6y ago
Keep 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 ago
  The 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 ago
    True 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 ago
      Correct, but not 100:1 hedging.
  - rocho 6y ago
    In 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 ago
  how 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
    I don't think the retail purchases were as concentrated.
- ganonm 6y ago
  This is totally incorrect. Individual options contracts are indeed written against 100x of the underlying asset but this has absolutely nothing to do with the relationship between the price (premium) paid per contract and that of the underlying share. To given an example, you could find a put option whose premium is actually equal to the current market value of the underlying (i.e. a merely 1 to 1 relationship) or one that's so far out of the money that it's a 1 to 1000 relationship. Without knowing more details about the precise options SoftBank bought, we cannot infer how much market cap in underlying shares the $4bil corresponds to.
kolbe 6y ago
Retail 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.

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

If that’s true, that’s 34B in the total options market, this 4B is targeted at like 5 companies.

mightytravels 6y ago

Keep 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 ago
The 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 ago
  True 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 ago
    Correct, but not 100:1 hedging.
- rocho 6y ago
  In 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 ago
how 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
  I don't think the retail purchases were as concentrated.
ganonm 6y ago
This is totally incorrect. Individual options contracts are indeed written against 100x of the underlying asset but this has absolutely nothing to do with the relationship between the price (premium) paid per contract and that of the underlying share. To given an example, you could find a put option whose premium is actually equal to the current market value of the underlying (i.e. a merely 1 to 1 relationship) or one that's so far out of the money that it's a 1 to 1000 relationship. Without knowing more details about the precise options SoftBank bought, we cannot infer how much market cap in underlying shares the $4bil corresponds to.

kolbe 6y ago

Retail 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.