Economy

Softbank Bets Heavily On Option Purchases, Primarily In Tech Sector

Softbank Bets Heavily On Option Purchases, Primarily In Tech Sector”

It has been under pressure from hedge fund Elliott Management to use this cash to pay down debt and buy back shares, after its attempt to raise a second $100 billion Vision Fund struggled because of the lukewarm investment performance of its predecessor and faltering bets. However, when the prices tend to fall the puts rise.

SoftBank bought a roughly equal amount of call options tied to the shares it bought, according to the Wall Street Journal. Softbank is known as an aggressive player in the tech startup business, but not so known for investing large amounts of funds in the biggest tech stocks in the world, such as Apple, Alphabet, Microsoft, etc.

It looked at some of the elders like a conjecture mania.

The Financial Times and the Wall Street Journal today reported that SoftBank has purchased billions of dollars' worth of options tied to the shares of publicly traded tech companies. It has also spent more buying derivatives in US stocks, the sources said.

Reuters could not immediately determine what options strategy, or combination of put options and call options, SoftBank used.

The Japanese conglomerate's recent stock market bet reportedly saw it buy a large batch of so-called call options. A lot of the call buying was an upward lift to the market. Retail investors, such as online platforms such as Robinhood Trading - Commission Free - have also embraced a record number of options trading and chased the name of big technology.

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"The apparent growth of small retail investors and the growth in options-related trade". This has contributed to the speculative nature of the market in recent weeks, "said Chris Igo, chief investment officer at AXA Investment Advisors".

What does such solitary activity mean for a wider market?

Raymond James market strategist Ellis Phifer said the buying by SoftBank would have helped push up shares of tech companies in recent months, although the stocks were benefiting from other trends.

The alternative market activity is linked to the stock market.

Softbank sold the call options at a higher price, according to The Journal's report. These dealers, which include large banks such as Goldman Sachs, JPMorgan and Morgan Stanley, and expert marketers like Citadel Securities, are appealing to call options holders to pay if share prices rise, and those options have proved to be profitable. As those calls were bought, it forced the counterparties to hedge via buying the underlying, sending shares ever-higher. Their purchase, in turn, pushes the underlying stock and creates a self-fulfilling prophecy that helped push Tesla and Apple to an all-time high this week. During the most recent stock market rally, Apple's market cap increased by nearly $700 billion. Typically, such volatility measures are minimized when the market rises.



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