Over the past 6 months, special attention has been paid to Tesla and - more specifically - euphoric call-buying in the name that undoubtedly helped propel a gamma squeeze that has seen Tesla's equity scorch higher since the beginning of the year (something we discussed first in May in "Are Mysterious Call Option Purchases Forcing Tesla Stock Higher?").
Weeks ago we learned that Softbank was helping along the broader market rally with a strategy of buying OTM call spreads in a handful of high beta tech stocks - a strategy that netted Softbank upwards of $4 billion.
Now it appears as though Goldman Sachs may be cashing in on a similar strategy.
According to IFR Reuters, the investment bank made about $100 million trading Tesla alone over the last several months. The bank was engaged in trades that included "stock options, providing financing secured against Tesla’s shares, and buying and selling its convertible bonds," according to Bloomberg.
Goldman's equity trading desk doesn't deal with retail investors. But the sizeable revenues it raked in show how the investment bank's traders still managed to profit from these extraordinary market moves, in part through using derivatives to position for an upswing in Tesla shares, sources said.
In addition to making buck in Tesla calls, the vampire squid also made it rain buying and selling Tesla converts (which have a face value of over US$4bn), whose prices climbed sharply this summer as the company's shares rocketed. Goldman bankers also made money providing financing secured against shares in the company, or as it is also known, "corporate equity derivatives deals" involving Tesla. That is an umbrella term for a range of transactions – including margin loans, or lending money against a company's shares – which usually involve providing financing against large equity stakes, IFR reported.
The action from Softbank acted as a "tailwind" for the company - and ultimately for Goldman, as well - as option missiles fired across the tech sector helped the broader market rise before the NASDAQ dropped about 12% from highs earlier this month.
According to the report, in a time when single stock option volumes exploded 3x in the second quarter compared to the same period last year, the surge in Tesla option volumes was even more remarkable - $1.45 trillion in July, up more than 10x from $124 billion in July of last year. Amazon was the "second largest beneficiary" of the options trading, Reuters notes, seeing activity rise from $632 billion to $1.48 trillion over the same period.
These imbalances occurred over the summer, where volume is notoriously low in equity markets. In simple terms, as best as we can understand: major financial institutions seem to be undertaking equity manipulation via the relfexivity of options market (where the tail literally wags the dog) as an actual trading strategy now.
Call us old fashioned, but whatever happened to the good old days of banks simply trading on material non-public information?