SoftBank has been at the forefront of a wave of call option purchases on US technology stocks that is distorting relations between derivatives instruments, as well as raising concern about a bubble in underlying equity prices.
The scale of the buying is questioned, with estimates ranging from $30 billion to $50 billion of notional call option purchases from SoftBank at a possible premium outlay of about $4 billion, while retail investors have also been active.
SoftBank declined to comment.
The impact of overall call option buying is undeniable, however.
Between the middle of August and early September there was a sharp rise in the price of call options on the technology-dominated Nasdaq index, as well as for key single stock options, while the price of put options remained virtually unchanged.
The rise in the volume of call options traded compared to put options also increased, to the highest ratio seen since before the technology stock crash of 2000 – with call options trading at almost 2.4 times the volume of puts by early September.
The stark change in conditions for the biggest technology stock – Apple – underscores the effect this dealing has had on volatility pricing.
