Nvidia shares are down around 4%, testing cycle lows, after Bloomberg reports SoftBank is planning to offload its stake in the chipmaker early next year, according to people familiar with the matter.
Despite the stock's recent demise, Softbank could make about $3 billion in profit from the trade, said the people, who asked to not be identified because the matter isn’t public.
The headline prompted immediate algo selling but lots of noise in the market...
However, this is not your normal sale; as Bloomberg points out that while SoftBank still holds an equity stake in Nvidia, it has constructed a so-called collar trade of about $6 billion, the people said, which allows investors to amass stakes while protecting themselves against a decline in stock prices.
SoftBank has structured equity trade deals with investment banks to hedge against a drop in Nvidia’s share price, the people said.
But do not hold your breath, as SoftBank’s opportunity to sell its Nvidia stake is structured via a series of tranches that begin to expire early next year, said the people.
The average price for the options is between $230 and $240 a share ($80 above the current price), one of the people said. SoftBank may decide against exercising its option to sell its stake if Nvidia’s share price rallies, the people said.