Masayoshi Son is the "Nasdaq Whale"

By Matthew Klein |  Friday, September 4

Harpooned Whale. Masayoshi Son, the head of SoftBank Group and its Vision Fund, once gave a presentation featuring a pie chart that represented “sorrow,” with slices of the pie labeled “death,” “loneliness,” and “despair.” Anyone looking at the value of Son’s investment portfolio can relate.

Apparently, Son has been speculating on large-cap U.S. tech companies by buying billions of dollars of call options, in addition to owning the underlying shares. The leverage provided by the options and the consequent hedging activities of the options dealers helped drive the recent melt-up in stocks such as Tesla, Apple, Microsoft, Adobe, and Amazon.com. As recently as Wednesday, the tech-dominated Nasdaq Composite index was up almost 35% year-to-date and had just smashed through the 12,000 level for the first time.

From the close of Wednesday until about 10:40 a.m. today in New York, however, the Nasdaq lost roughly 10% of its value, with many of the highest-flying companies down even further. Tesla and Apple, for example, had dropped roughly 16% from the Wednesday close. SoftBank, the “Nasdaq Whale,” had been harpooned. 

Some of those losses were reversed by Friday’s close, but the rally wasn’t enough to prevent the Nasdaq from losing more than 6% of its value in the span of two sessions. (The value of the call options on those stocks, which are bets on further price appreciation, fell much more.)

For perspective, trading volume in single-stock call options had roughly doubled in the past two months, which pushed demand far above the long-term average.

In theory, options are meant to protect investors from large swings in asset prices, so the buying by SoftBank and others ended up inflating conventional measures of risk that are based on the “implied volatility” of stocks. The VXN, which measures how much risk is embedded in the prices of puts and calls on the Nasdaq, for example, rose from about 30, where it had been from May through much of August, to more than 40 earlier this week.

But large-cap tech stocks weren’t the only asset with a recent wild ride. Lumber futures—possibly the lowest-tech financial asset in the world—had soared 150% between the beginning of June and the peak on Tuesday. Before that, lumber prices had mostly moved in line with the Nasdaq. Lumber prices fell sharply earlier in the week, although they’ve since rallied a bit in line with tech stocks. As far as we know, Masa Son didn’t have any lumber exposure.

All of the recent volatility in the markets is a contrast to the economic data, which have been far more encouraging (and stable). The latest numbers on construction spending, trade, and jobs caused the team at IHS Markit to boost their growth forecast for Q3 GDP by 2 percentage points compared with last week’s estimate.

And while initial claims for unemployment insurance benefits remain stubbornly high, they also haven’t gone up since the beginning of August. The question for stock investors is whether the technical factors or the underlying economic fundamentals will matter more.

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