SoftBank reveals details of controversial derivatives trading

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SoftBank Group Corp. provided new details about its stock and options trading program, a controversial effort that roiled markets and raised concerns about the Japanese company’s financial stability.

SoftBank said the fair value of its futures and options positions came to $2.7 billion at the end of September, suggesting its positions are more conservative than originally feared. That included long call options on listed stocks worth $4.69 billion and short call options on listed stock with negative $1.26 billion of value, the company said in an earnings statement on Monday.

The long call options carried a notional principal of $72.1 billion as of Sept. 30, while the short call options had a negative notional principal of $47.6 billion. It also detailed $16.8 billion in stock investments, including $6.3 billion in Inc., $2.2 billion in Facebook Inc. and $1.8 billion in Zoom Video Communications Inc.

SoftBank’s foray into derivatives trading proved costly when it was first disclosed in September. The Financial Times described SoftBank as the “Nasdaq whale” that “stoked the fevered rally in big tech stocks,” and the company’s market capitalization slid by as much as $17 billion.

Rajeev Misra, head of the company’s Vision Fund, disputed that characterization and said its trading wasn’t nearly large enough to move trillion-dollar companies.

“We’re not even a dolphin, forget being a whale,” he said in October.

SoftBank founder Masayoshi Son and Misra have said their investments in stocks and derivatives is simply part of the company’s transformation into a financial holding company. Son in March unveiled plans to sell off 4.5 trillion yen ($43 billion) of assets to reduce debt and fund buybacks. SoftBank has invested beyond cash to improve its returns.

Despite shareholder skepticism, SoftBank has charged ahead with its new public-stock trading arm. The strategy was built around expectations of a volatile third-quarter earnings season, people familiar with the matter said last month. SoftBank has been buying out-of-the-money call options, which deliver returns when share prices rise, and selling calls at even higher prices, one of the people said. Call spreads, as they’re known, cap gains but reduce the initial cost.

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