Markets stocks

Oh, Whale: Misguided Media Frenzy Around Tech Trades Prompts Rethink At SoftBank

“While we are not concerned about a dominant ‘whale’-type investor, exceptionally large trades in thin markets”, raise the odds of “exacerbated stock moves as dealers hedge exposure”, JPMorgan’s Shawn Quigg told Bloomberg, in e-mailed comments published Thursday.

The reference was, of course, to SoftBank and Masayoshi Son’s “whale” trades, as the media took to describing them. By now, this story has perhaps worn out its welcome in the news cycle after a solid week of incessant coverage, much of which centered around a debate about the relative impact of Son’s trades on the self-feeding loop that helped push US tech shares into the stratosphere this summer.

While it’s now widely accepted that months of retail options speculation created the conditions for dealer hedging to amplify upside, especially when fundamental catalysts (e.g., earnings) triggered outsized gains in the tech space, the impact of Son’s trades was likely more muted, according to multiple sources who have weighed in sporadically during a tech correction which, when contextualized with prevailing volatility, was among the largest since the dot-com bust, according to BofA’s derivatives team.

Seemingly confirming the notion that the trades were misconstrued (I’m not going to use “exaggerated”, because that’s too risky an adjective when it comes to opaque positions the exact nature of which are impossible to discern), the ubiquitous “people familiar with the matter” told Bloomberg that SoftBank “has stressed to investors that its billion-dollar positions have been concentrated in a handful of blue-chip tech companies, including Microsoft and Facebook and have involved call spreads rather than highly leveraged short-term bets”.

That’s not exactly “news”, but, again, it perhaps underscores the notion that some of the initial reporting lacked the proper nuance, to put it nicely. I’m a bit guilty of that myself (although not nearly on par with other outlets), and what I would stress is that, with stories like this, the rush to provide the “best” take creates a “keeping up with the Joneses” dynamic pretty quickly, often at the expense of veracity.

Bloomberg goes on to say that the trades were concentrated in Amazon, Adobe, Alphabet, Netflix, Salesforce, and Facebook. SoftBank “typically” bought OTM calls “then sold even higher priced calls”, the same linked article reads, citing one of the sources.

Now, SoftBank is apparently rethinking this in light of unfavorable media coverage.

In addition to investor meetings during which the trades have been described as “relatively conservative” (as opposed to the hallmarks of a degenerate gambler), the conglomerate is pondering additional disclosures (which Son is reportedly against) and/or tweaks to the strategy.

Shares of SoftBank were sharply lower in the days following the “unmasking” of Son, which wasn’t really an “unmasking”, as such, despite the somewhat belabored efforts of The Financial Times and The Wall Street Journal to turn this into some kind of earth-shattering scoop.

Son’s presence in the market was known for weeks by institutional players. As one person familiar told me, “I thought everyone already knew”. Another said simply “Yep, absolutely”, when asked early last week if SoftBank’s trades were an open secret. I can say, definitively, that the first public post identifying SoftBank came in passing remarks on the site “Bear Traps”.

In any case, all the attention probably isn’t welcome after a series of high-profile flameouts, and it casts a pall over SoftBank’s new asset management arm unveiled last month.

On the same day SoftBank announced the vehicle, Bloomberg cited unnamed sources in the course of suggesting the new venture was in fact poised to invest at least $10 billion, nearly 20 times the capital the unit started out with. The same sources said the investments would be structured in order to obscure SoftBank’s participation.

Consider that effort shot to sh*t — if you’ll pardon the language on a Friday.


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