SoftBank shares drop on massive choice bets on drops

Shares in SoftBank Group Corp.

9984 -7.15%

It fell as much as 7% on Monday, as investors reacted to the news of the massive bet that the company had increased Tech shares.

The size of the bet — which stock options used as more than $ 50 billion in individual tech stocks — reported by The Wall Street Journal, means SoftBank could win big if the market moves its way , Or loses a large payment for payment. The alternative is if the tech share prices fall, as they did last weekend.

Details about the trade are unclear, so it is unclear how risky this bet is for the Japanese group. The company, known for its $ 100 billion venture-capital vehicle, Vision Fund, has not published any details of the business. A company spokesperson declined to comment.

Softbank shares fell 7% to ank 5,881 on Monday, with Japan’s benchmark Nikkei stock average down 0.5%.

David Gibson, an analyst at Estris Advisory Japan, said, “The scale is what it is told about.” If SoftBank is betting on tens of billions of dollars of shares, “this is a change in the company’s risk profile.”

Softbank billionaire founder Masayoshi Son built his reputation for making smart investments at fast-growing privately-held tech firms. But last month he announced a new asset-management unit, which also spent billions of dollars in public markets. The bulk of the money came from more than $ 50 billion in asset sales that SoftBank is in the process of executing.

However, most of the cash is held for share buybacks or debt redemption, until those deals are completed, with SoftBank parking money at tech companies like Inc.

Or Microsoft Corp. Softbank held such stocks at the end of June at about $ 4 billion, according to regulators’ filings.

Pierre Ferragu of New Street Research said Softbank’s aggressive use of its cash holdings to invest in the market is “not normal in our corporate culture”. Most companies invest excess cash in treasuries or corporate bonds. “It’s very uncertain for investors,” he said, until they know more about the business.

SoftBank may get very little credit from investors. Even if they made $ 5 billion, “It’s a one-off, you don’t know what risk they took,” Mr. Ferragu said.

Investors and options traders are trying to tie together the shape of SoftBank’s position through the option data available in the market. Some institutional holders of SoftBank say that the company is a sophisticated investor and the business is unlikely to take too much risk.

One possibility is that SoftBank’s business may bet the company on the direction of share prices, while losing. Investors often do this to buy and sell options – contracts that confer the right to buy stock at a fixed price at a later date. For fast bets, option investors make money when the price of a stock rises, whereas if it goes down, they will only be out of the premium paid for the option. SoftBank has sold options at potentially higher prices, further limiting its risk, investors say.

Softbank’s option stakes were quite large, however, people familiar with the business said it represented billions of dollars in premiums. Some of that money may be worthless if the underlying shares do not perform as expected.

It is unclear whether the business has lent money to SoftBank or whether it is able to realize any profit or loss. Tech stocks gained momentum last week and are likely to change their positions.

Softbank’s investment record has recently been clouded by the impact of some high-profile bets in the form of investments in US office-share firm WeWork, resulting in a billion-dollar write-down over the past year.

But its share price has stalled since spring, when Mr. Son indicated the company would change the deal. He promised to sell Softbank’s best-known assets to consolidate his balance sheet. The sale of bets to T-Mobile US has since been announced Inc.

Japanese telecom arm of Chinese e-commerce giant Alibaba Group and Softbank.

Peter Garnery, head of equity strategy at Saxo Bank, said that the company’s option trading in large tech stocks may cause investors to rethink their long-term view of SoftBank. “Why would this company have an edge in this new segment,” he said.

Write Phred Dvorak at [email protected]

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