NASDAQ Whale Makes a Splash on Big Tech

By Dylan Howse

The Japanese conglomerate SoftBank has been revealed as the perpetrator behind the tech industry’s recent rise and fall.  

Nearing the end of August, the market was rallying as investors became more confident after recovering from the downfall of the pandemic. Yet, it was the tech industry that caught everyone off guard as their stock rose astronomically in a span of a few weeks.

Take Tesla (TSLA) for example, in the period between August 14 and the end of the month, the stock grew by 81% growing from 274.88 to 498.32. Following suit, other blue-chip tech companies such as Amazon (AMZN) with a 14% growth, Alphabet (GOOG) at 15%, and Microsoft (MSFT) with 14% over that same time.

The cause of this uptrend? Masayoshi Son, the founder of SoftBank best known for investing in relatively safe young technology businesses. It was revealed the first week of September that they had been grabbing up options in tech stocks, fuelling the largest ever trading volumes linked to individual companies.

Buying call options is a financial derivative that gives the owner the right to buy a share at a pre-agreed price. A side effect is that the trade can help drive up the actual stock price as the sellers of the options buy the underlying shares.

By putting so much capital into one particular industry, especially in the form of call options, one can move the market whenever it likes. By becoming a ‘whale’ SoftBank had inflated the tech industry so much that the company was said to be sitting on trading gains of about $4bn after making these massive equity derivative bets.

“These are some of the biggest trades I’ve seen in 20 years of doing this,” said one derivatives- focused US hedge fund manager, “The flow is huge.” Veteran traders in the market say it was some of the most dangerous activity by a single firm that they’d ever seen.

What seemed like a smart strategy turned sour in September, as the massive tech sector gains in August came crashing down as Masayoshi Son was revealed as the ‘NASDAQ Whale’ and investors in SoftBank, and in the broader market, became scared that the strategy was irrationally high risk.

The Vix index, commonly noted as Wall Street’s fear gauge rose due to Softbank’s actions, meaning that equities were volatile and vulnerable to a fast drop. And that’s exactly what happened.

Investors pulled out and began to sell as the NASDAQ dropped dramatically in the days following as tech companies’ stocks plummeted upwards of 15% as we witnessed just a few weeks ago. SoftBank Corp was hurt the most as they dropped 17.3% in under a month.

Will they continue to fall? It’s unlikely, as in the last few days the buying has resumed and SoftBank along with the tech companies are beginning to recover from this very turbulent September. But only time will tell what the future of this dangerous strategy will be.

Most times the market reflects thousands upon thousands of individuals, investors, and analyst’s perception of prices and quantities. In the case of SoftBank, it goes to show you that if someone has the right amount of capital and financial know-how, they alone can shift the entire landscape of the market.

Photo by Iswanto Arif, Unsplash

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