Seeing vertigo-induced growth in tech stocks and Thursday’s fall, investors are booming with a single trade, a huge but shadowy trust can be placed on Silicon Valley that could pull the market with it.
The investor behind that trade, according to those familiar with the matter, is Japan’s Softbank 9984 -3.21%
Group Corp., which bought options linked to billions of dollars worth of individual tech shares. Investors and analysts, aware of the activity but in the dark about who is behind it, say it has turbocharged the tech sector, whose size runs into a larger market.
A Softbank spokesman declined to comment.
The stock market will hit a record high this year, despite severe pain in the economy from the coronavirus epidemic. Work, tech and entertainment shifted to tech stocks led to shifting charges, but entered a new phase in recent weeks.
Earlier this week, Apple Pal Inc. By the end of July, Tesla had a market capitalization of about 700 700 billion. Inc.
Divides more than twice as many shares, making the electric car maker one of the 10 most valuable companies in the world.
Regulatory filings show that Softbank has bought about 4 4 billion worth of shares in tech giants such as Amazon.com. Inc.,
Micro .ft Corpo.
And Netflix Inc.
This spring, in addition to Tesla’s stake. It is not included in the ads, it is a trade of huge options, which is made to pay if the stock market rises to a certain level and then locks the profit, people said.
According to a person familiar with the matter, Softbank spent Rs 4 billion on call-by-call options as well as other names tied to the underlying shares purchased. It also sells call options at high prices. This allows Softbank to make a profit from the near-term run-up in stocks and then make a profit by lowering its position to a ready counterpart.
A handful of large stocks – Apple, Micro .ft, Amazon, Facebook,
And Google-owned Alphabet – making up about a quarter of the S&P 500 index. They take a broad stock market with them when they rise or fall. His dramatic rally in recent weeks has pushed the stock market to new heights, but has also raised concerns about the risky end that could pull the market with him.
The possibility of such an end came to the fore on Friday, as the tech-heavy Nasdaq fell sharply to almost %% on the second day as well.
Traders say market dynamics can be partially explained by investments like Softbank. The activity of options is so strong that traders have said that it has helped intensify the rally in tech stocks and increase the unusual dynamics in the markets.
The options strategy has been advantageous in stocks like Salesforce.com Inc.,
Which rose 26% in a single day after its revenue, traders said. Options are agreements that allow investors to later buy or sell shares at a certain price in a timely manner. Call gives you the right to buy options, while Putts gives you the right to sell. Traders can tap these derivatives contracts to make directional bets on stocks or to hedge their portfolios.
Investors buy options contracts in individual stocks or linked to broad indexes such as the S&P 500 or the Nasdaq Composite. When banks and brokers arrange options for investors, they stay in touch with the markets on their own.
To zero that exposure, option dealers buy derivatives and stocks. In the case of call options, this may give a further boost to stocks and indexes. As the shares jump, they need to hedge more, adding fuel to the fire. Such hedging activity can also intensify moves when markets are down.
According to traders, there are a lot of great options, including buying call options on stocks like Amazon.com Inc., Adobe. Inc.,
Netflix Inc., Facebook Inc. Micros .ft Corp. produces chat on Wall Street.
Some of these activities have come from individual investors who have been lured by free trade on sites like Robinhood Markets Inc. The role of Softbank suggests that even large options are playing a role in the excitement of tech options trading.
“The move is encouraging,” said Danny Kirsch, head of options at brokerage Cornerstone Maro Cro, a boom in tech activity. “That’s why the move is so stretched both ways.”
The position of Softbank’s options was previously reported by the Financial Times.
-Proud Dvorak contributed to this article.
Write to Summer Summer Summer.said on @ wsj.com, liz.hoffman on [email protected] and Gunjan Banerjee [email protected]
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