Nasdaq Whale: Softbank's huge tech options bet answers stock rally riddle

Masayoshi Son, at one time considered to be the Warren Buffett of Japan, has pretty much gone full Robinhood trader.

As it turns out, Son’s conglomerate, SoftBank Group Corp., may be behind the rip-roaring ride in large-cap U.S. technology stocks in recent weeks that lifted the broader market and, in effect, made investors nearly forget the Covid-19 crisis for a moment. The “Nasdaq whale,” the Financial Times calls him, referring to a monstrous options trade that the paper’s unidentified sources say was made by SoftBank. Here’s how the Wall Street Journal describes the curious move:

Investors watching the vertigo-inducing rise — and Thursday’s fall — of technology stocks are buzzing about a single trade, a giant but shadowy bet on Silicon Valley big enough to pull the market up with it. The investor behind that trade, according to people familiar with the matter, is Japan’s SoftBank Group Corp., which bought options tied to around $50 billion worth of individual tech stocks. 

It’s a lot to take in. We’re talking about a period during which Apple Inc. became a $2 trillion company; Amazon.com Inc. added more to its market value in a month than it did in all of last year; and Telsa Inc. founder Elon Musk vaulted past Buffett in the ranking of the world’s wealthiest people. While all the tech giants have benefited in some way from societal shifts brought on by the pandemic — a surge in demand for everything from online shopping and streaming-video, to work-from-home software solutions — market observers have struggled to explain exactly why their share prices took an extra leg up over the summer. Bloomberg Opinion’s Nir Kaissar wrote this week about the conundrum that this has created for money managers: whether to stick with a responsibly diversified portfolio that’s destined to underperform, or chase the fad.

It’s unusual for options-buying tied to individual stocks to be so explosive that it could move markets in this way, but that’s now the prevailing theory. Equity derivatives have become a favorite trading toy for presumably bored retail investors — those who don’t manage money professionally — who have taken a liking to platforms such as Robinhood while being shut in during the Covid-19 crisis. It’s hard to know Son’s specific motivations for joining that camp, but it’s certainly not boredom. 

Investors have gone back and forth on whether Son, 63, is a true visionary or more of a gambler. He once spoke of a 300-year plan for SoftBank, but it soon became evident that he needed to concentrate on the present. Fraught investments in U.S. wireless carrier Sprint Corp. and office-rental company WeWork Cos. bruised his reputation. And after writing down the values of investments in WeWork and Uber Technologies Inc., SoftBank suffered a loss for the Japanese record books. Son was finally able to sell Sprint to T-Mobile US Inc. this year, ironically leaving the Japanese businessman as the biggest beneficiary of a deal pitched to regulators on American patriotism. As SoftBank laid plans to dump more than $40 billion of assets to shore up its balance sheet, Son was apparently left with funds to spend. 

SoftBank, best known for its Vision Fund, also said last month that it will no longer report operating income. My Opinion colleague Tim Culpan wrote that the change makes sense given that SoftBank hasn’t “operated” anything for a long time; it functions more as a stock picker, investing in startups and publicly traded companies. 

A bet on Big Tech is a risky one, though. Some have compared the industry’s outsize gains to the dot-com bubble that famously burst 20 years ago. Fellow Opinion columnist John Authers got it right when he wrote Friday: “If there is a bubble in the biggest tech companies, it is arguably in their profits, and how they have been allowed to build up monopolistic market power, rather than in their valuations.” A monopoly bubble is a lot harder to pop, but Democrats are trying. What stands in their way are 100-year-old antitrust laws that don’t make a single mention of the word at the root of Big Tech’s power and overreach — its exclusive hold on reams and reams of valuable data.

Still, the bubble began to seep this week, and news of Son’s almost single-handed influence won’t help matters. But the only thing that will truly rein in Big Tech is an administration that wants to.