Great read. This is none other than another 2008 mortgage backed security crisis. The only other elephant in the room is that it’s so big that the fiat system of currency is facing an unprecedented crash. Semantics and terminology aside of course since I’m not a market scholar.can anyone translate this?
Softbank is just riding the momentum trade wave, actually it’s exacerbating it. It’s inflating a bubble bigger and like musical chairs someone will be left without a chair, namely, the taxpayers.
I liked this quote:
“... or that dealers have not yet figured out a proper strategy to hammer implied vol. One thing that is certain is that it is only a matter of time before dealers, who were counterparties to the SoftBank trade and are likely nursing billions in losses (assuming they didn't delta-hedge all of their exposure) will do everything in their power to punish the Japanese conglomerate. And even if they did fully delta-hedge their outlier gamma exposure, now that the FAAMG rally has broken, the precipitous ramp observed on the way up is about to reverse as dealers start dumping the stocks they had to buy as gamma spiked, leading to a mirror image of the melt up trade. In short, while SoftBank may have made a 100% profit, unless it somehow unwinds this trade asap, it risks losing not only all of its gains but also suffer material losses that would eat into the option premium and would then also hammer the value of its underlying stock investments.
The bottom line is that as one unnamed trader quoted by the FT said, "it’s just a levered punt on the market. The whole strategy is just momentum buying."