The Trading Strategy
6 Reasons for a $4 billion profit
1. High retail options market activity
Retail or individual investors have been getting increasingly active in stock options trading. Individuals currently account for 30% of options trading volume in popular tech stocks like Google and Shopify and the volume for single stock options with less than 2 weeks to maturity now comprises 75% of total option volume, according to Goldman Sachs.
2. Very narrow breadth in US stock indices
Investors have been betting in the outperformance of a smaller and smaller group of stocks as a proportion of the wider market. Measures like the advance/decline index, percentage of companies above their 50-day moving average and the relative market cap of the top five stocks in the S&P 500 have all pointed to narrowing breath.
3. Individual stock options easier to corner
Softbank focused on individual stock options, which are much smaller markets than options in stock indices. Portfolio managers typically use index options to hedge their portfolio of stocks rather than buying an option for each specific position because its cheaper and similarly effective if they have a balance portfolio.
Total volumes traded in individual stock options has reached the highest ever in the past two weeks according to Goldman Sachs.
4. Zero commissions & HFT front-running
5. Dealers in summer trading conditions
6. Social distancing and FOMO