Softbank, which is one of the world’s leading venture capitalists which manages about $100 billion Vision Fund, has been making considerable bets on major tech companies. The report from Wall Street Journal (WSJ), indicates that the Softbank Group is probably behind the rise of the stock market of IT companies in U.S. Reportedly, SoftBank bought about $4 billion worth of stocks and ‘call options’ of tech companies such as Amazon, Microsoft, Netflix, and Tesla this spring.
See the blog:
https://techongstudy.blogspot.com/2020/09/bigger-correction-of-market-after.html
One of the three most essential derivatives (Plain Vanilla; futures, swaps, options). An option is a contract conferring the right (not obligation) to buy and sell an underlying asset at specified strike price at maturity. The right to buy is called a call option, and the right to sell is called a put option. Here is example from Investopedia.
If Apple is trading at $110 at expiry, the strike price is $100, and the options cost the buyer $2, the profit is $110 - ($100 +$2) = $8. If the buyer bought one contract that equates to $800 ($8 x 100 shares), or $1,600 if they bought two contracts ($8 x 200). If at expiry Apple is below $100, then the option buyer loses $200 ($2 x 100 shares) for each contract they bought.
Traders can strike deals of derivatives contracts to make directional bets on assets (mostly stocks) or hedge their portfolio. Option holders can make big win if market skyrockets, but can lose a sizable premium and down payment if stock market drops.
In case of Softbank, the stock rises above the strike price. Brokerages or banks who arranged options get themselves to the exposure of risk. To offset the risk, option dealers buy more stock and derivatives, which leads another jumps to stock market. When shares soar, brokerages need to add fuel to the fire to hedge more. Buying more of stocks will reduce the loss a little more than doing nothing. That is why Softbank is said to be behind the surge in technology stocks.
U.S. stocks overall has increased since March as the gambling market closed due to pandemic and the number of individual investors trading stocks options through online brokerages such as Robinhood increased. Softbank generated an exposure of around $50 billion for its bet this year by using growing optimistic sentiments of investors backed by massive liquidity under Fed and U.S. Treasury. However, stocks fall for the fast few days after the news, rising concerns of Softbank’s dangerous attempt of unfamiliar area according to Bloomberg. Also, the Financial Times (FT) raised worries that investing in options that rely too much on the market could be risky. If the U.S. stock market falls in the future, Softbank’s earnings may decrease,
Source:
https://edition.cnn.com/2020/09/07/investing/softbank-stock-options-intl-hnk/index.html
https://www.investopedia.com/terms/c/calloption.asp
https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205
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