SoftBank option purchases raise eyebrows as Wall Street backtracks

SoftBank Group Corp made significant option purchases during the run-up in the U.S. stock market in recent weeks as a way of temporarily investing …

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So far, SoftBank has spent roughly $10 billion buying shares. It has also spent more buying derivatives in U.S. stocks, the sources said. The Financial Times first reported on these derivative purchases on Friday.

A SoftBank spokeswoman declined to comment.

Reuters could not immediately determine what options strategy, or combination of put options and call options, SoftBank used. Hedging around the purchase and sale of options can magnify moves in the underlying market.

The main indexes on Friday were recoiling from the all-time highs hit midweek. The Nasdaq was on track for its worst two-day fall since March as investors dumped heavyweight technology stocks, while concerns around a patchy economic recovery also hit the S&P 500 and the blue-chip Dow.

“If SoftBank was selling puts its a very dangerous strategy. The big questions are – the scale of what they were doing and are they selling puts to buy calls – because that’s when you get embedded leverage,” said Michael Purves, founder and CEO of Tallbacken Capital.

SoftBank has already built a stake worth around $1.2 billion in e-commerce giant Amazon.com Inc, according to regulatory filings.

In addition to Amazon, the Japanese tech conglomerate has built stakes in Netflix Inc, Tesla Inc, Microsoft Corp and Alphabet Inc, according to the filings.

In total, SoftBank has injected roughly $4 billion building up these stakes.

(Writing by Alden Bentley; reporting by Greg Roumeliotis in New York and Anirban Sen in Bengaluru, Ross Kerber in Boston, Megan Davies and Alden Bentley in New York; Editing by Tom Brown)