SoftBank's options exit unlikely to cause stir in markets, analysts say

SoftBank's unwinding of its derivatives holdings is unlikely to cause much of a stir in markets, analysts have said

(Reuters) - Massive options bets believed to have been placed by SoftBank Group Corp earlier this year were among the most visible manifestations of the recent mania for technology shares, but the firm's unwinding of its derivatives holdings is unlikely to cause much of a stir in markets, analysts said.

The big options purchases attributed to the Japanese company led it to be dubbed "the Nasdaq Whale" in some media reports. But now SoftBank will step away from derivatives trading following a backlash from its investors, Bloomberg News reported on Wednesday, citing unidentified sources.

About 90% of the options, which accompanied SoftBank shifting part of its cash reserves into listed tech stocks, will be closed out by the end of December, Bloomberg said. (https://bloom.bg/2JBIuT6)

A SoftBank spokeswoman declined to comment on the Bloomberg report.

The options trades were a way of temporarily investing some proceeds from asset sales, people familiar with the matter told Reuters in September. SoftBank declined to comment on the matter.

While it is difficult to gauge the exact impact of SoftBank's options trades on the market, its big purchases of bullish upside calls on the shares of companies such as Amazon.com Inc, Netflix Inc, Tesla Inc and Microsoft Corp, among others, helped stoke investor sentiment around a surge in which the S&P 500 Information Technology sector rallied by 80% between late March and early September.

Still, few believe that SoftBank's unwinding of its options strategies would leave a major mark on equity markets, where the mania for technology shares has cooled in recent weeks as breakthroughs in a vaccine against COVID-19 fuel hopes of a broader economic revival.

"While the initiation of these trades had a notable impact on investor sentiment over the summer, the closing of the trades has been much less impactful," said Susquehanna International Group's Chris Murphy. "Investors have too many other things to focus on, from the vaccine progress to the outcome of the U.S. election."

A sizeable portion of the year's rally in technology stocks has been driven by retail investors, who have joined longstanding institutional players to contribute to a surge in overall trading volumes. Total exchange-listed options cleared contract volume was 674 million in November, up 72% from last year, according to data from derivatives clearing organization, OCC.

"Retail traders are a much bigger piece of the overall thing. SoftBank is just one component of all that," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

Chief Executive Officer Masayoshi Son last month described the derivatives as a "rounding error" when compared with the group's broader portfolio.

The fair value of SoftBank's options and futures positions was $2.7 billion at the end of September, compared with $16.8 billion in tech stocks such as Amazon.com.

"The market is a lot bigger than SoftBank," said Art Hogan, chief market strategist at National Securities in New York. Still, he said the Japanese firm's pullback could weigh on investor sentiment in the sector.

SoftBank's shares have risen about 53% this year.

 

(Reporting by Saqib Iqbal Ahmed in New York, Susan Mathew and Aakriti Bhalla in Bengaluru and Sam Nussey in Tokyo; Editing by Bernadette Baum and Matthew Lewis)