Opinion: One of the conundrums of the market’s rebound since March has been the remarkable performance of the big tech stocks in the face of the pandemic
What happened in the sharemarket late last week and is it a harbinger of more selling to come?
The Fed’s more recent decision to effectively abandon inflation-targeting has added to investors’ conviction that negligible interest rates – in real terms, negative rates - will be the norm for the foreseeable future, providing both a safety net and an incentive for risk-taking. That’s the broad backdrop to what has happened in the market for those technology stocks in the lead-up to last Thursday.In the aftermath of the sharp sell-off late last week it has emerged that a "whale" - Japan’s SoftBank - has been a heavy buyer of both the physical stock and, more particularly, call options over the shares in the big tech companies.
At the same time as SoftBank has been accumulating its position in the mega techs, so have retail investors. They give the buyer the opportunity, without the obligation, to exercise the option and acquire the stock. If they choose not to exercise they lose their "premium," or the investment they made to buy the option.
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