SoftBank Apparently Is Warping Tech Options Trading. Why You Shouldn’t Be Surprised.

SoftBank Group has been on a year-long campaign to remake its capital structure and asset portfolio to make itself more appealing to investors, and …

The latest example arrived Friday, as both The Wall Street Journal and the Financial Times reported that SoftBank (ticker: 9984.Japan) in recent months has invested billions of dollars in U.S. equity call options in a move that seems to have contributed to the recent rally in technology shares—and may be adding to volatility in the selloff of the past few sessions.

There aren’t a lot of details here. Neither the Journal nor the FT have any details on the size of the bet, which stocks were the focus of the trading, or even if the recent trades are still in force. The Journal says one investor appears to have purchased options tied to $50 billion worth of individual stocks, but the value of the options invested would likely have been a lot less than that.

SoftBank isn’t commenting. But a push into the options market would be consistent with other recent indications that founder and CEO Masayoshi Son, known to most as simply Masa, has become interested in speculating in the equity markets. Here’s what we know:

  • In announcing June-quarter earnings, SoftBank also announced the creation of an investment management subsidiary capitalized at $555 million, with the cash to come two-thirds from the company and one third from Masa. In announcing the unit, the company specifically said it would invest in highly liquid public listed stocks, via both direct investments and derivative transactions.
  • As Barron’s reported, SoftBank booked a profit of $611.5 million in the June quarter after investing $10 billion of the cash from its recent asset sales in large-cap tech companies. As of the end of the June quarter, the position had been trimmed to $3.4 billion.
  • In a subsequent Securities and Exchange Commission filing, the company disclosed $3.8 billion in tech-stock holdings as of June 30, positions that appear to reflect both the holdings of the new fund and the tech investments with proceeds from recent asset sales. SoftBank disclosed a $1 billion stake in Amazon.com (AMZN) as well as $475 million worth of Alphabet (GOOGL) and nearly $250 million of Adobe (ADBE) shares. Other big bets include Netflix (NFLX), Microsoft (MSFT), and Nvidia (NVDA), all between $180 million and $190 million, with nine other stockholdings around $100 million, including Tesla (TSLA), Shopify (SHOP), PayPal Holdings (PYPL), DocuSign (DOCU), Zoom Video Communications (ZM), Square (SQ), Spotify Technology (SPOT), Paycom Software (PAYC), and ServiceNow (NOW).
  • As part of the June-quarter earnings announcement, the company also said it was changing the way it reports financial results to reflect the fact that it is an investment company, and not an operating company. That repositioning is only reinforced by the reports that the company has become a major force in the options market.
  • Just last week, SoftBank announced plans to sell about a third of its position in the telecom company SoftBank Corp. (9434.Japan) for $13.5 billion. That’s on top of the company’s nearly completed $41 billion asset sales program announced earlier this year, and accomplished via the sale of a large slice of the company’s stake in T-Mobile US (TMUS), the previous sale of SoftBank Corp. shares, and the sale of a small slice of the company’s huge stake in Alibaba Group Holding (BABA).
  • The company has also acknowledged that it is shopping the U.K. chip design house Arm, which it bought for $32 billion in 2016. That business could be worth $40 billion or more. Add it all up, and you have about $100 billion in cash, enough to allow Masa to dabble in tech stocks, warp the options market, or do almost anything else he has in mind.

What makes this situation so perplexing is that after six months of aggressively trying to please investors with the asset sales program, paying down billions in debt, and buying back $10 billion of stock, with another $15 billion to come, Masa runs the risk of frittering away that goodwill should a large bet in the equity or derivative markets go awry.

SoftBank’s American depositary receipts (SFTBY) were down 3.3%, at $28.97, in recent trading. The S&P 500 was down 0.8%.

Write to Eric J. Savitz at eric.savitz@barrons.com