How SoftBank's Billion-Dollar Option Bets Helped Fuel the Stock Market Rally

SoftBank Group has been making headlines recently, as it was publicized that they purchased massive quantities of options on technology stocks. The trades earned SoftBank the "Nasdaq Whale" nickname.

The move is controversial, as options carry a high risk of loss, and speculating with such size was seen as reckless by many shareholders, resulting in a decline in SoftBank's shares.

The speculative option bets placed by SoftBank were said to have exacerbated the recent parabolic surge in technology stocks, and potentially the subsequent decline as well.

But how do option purchases cause a stock's price to increase? If they were buying call options on these technology stocks, then they were not buying the shares directly. If they were not buying the shares directly, then their trading activities should have had no impact on the share price.

In this video, I break down how SoftBank's billion-dollar option purchased rippled through the financial system and helped fan the flames in the recent technology stock boom.

Video Timestamps

0:00 - Introduction
0:59 - Call Option Basics
1:38 - Hypothetical AMZN Call Option Purchase / Position Delta Explanation
2:43 - The Risk of SoftBank's Counterparties
3:37 - How Institutions Hedge Short Call Positions
5:02 - How Call Option Deltas Change Relative to Stock Price Movements (Gamma)
6:09 - Why Stock Price Increases Require SoftBank's Counterparties to Re-Hedge

Thanks for watching! Let me know in the comments if you have any questions.

VIDEO CORRECTION: I mentioned SoftBank purchased $4 billion worth of options, but that is how much they've made from their initial option purchases. It's unclear how much they spent on options initially. Likely hundreds of millions.

==== ADDITIONAL RESOURCES / VIDEOS MENTIONED ====

Options Trading for Beginners (The ULTIMATE Guide): https://youtu.be/7PM4rNDr4oI

Dynamic Delta Hedging: https://financetrain.com/dynamic-delta-hedging-gamma-related-issues/

Dynamic Delta Hedging #2: https://www.glynholton.com/notes/dynamic_hedging/#:~:text=Dynamic%20hedging%20is%20delta%20hedging,yielding%20a%20zero%20delta%20overall.

https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205

https://www.wsj.com/articles/softbank-shares-drop-on-concerns-about-massive-options-bet-11599487961

https://www.ft.com/content/53aa19bb-fc9a-46fd-aafd-4bc3669ab161

Trading Economics Calendar: https://tradingeconomics.com/calendar

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