Masa Son’s Huge Tech Option Bet

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During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Masa Son’s Huge Tech Option Bet. Here’s an excerpt from the episode:

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VALUE: After Hours - Masa Son's Huge Tech Option Bet

Tobias: Yeah, let’s talk Masa. There’s been an enormous amount of option speculation in some of the frothier names, in some of the techier names. And there’s been this the NASDAQ whale, and nobody really knew who or what the NASDAQ whale was. One of the conspiracy theories was, it’s an associate of Musk’s, putting these gigantic calls in way above the market in Tesla’s stock, which makes– There’s some delta hedging. So, if you’re the person on the other side of that call if you’re a market maker or you’re a bank or someone, and you’ve made that call in order to hedge yourself, you have to get longer stock, which in turn pushes the stock up and it’s a self-reinforcing cycle.

Bill: Okay, and taking a step back, Toby, that’s because when you are selling the calls to the counterparty, you’re negative the delta. So, you buy the stock to offset your negative exposure.

Tobias: Right. You’re hedging yourself. That’s right.

Bill: There you go.

Tobias: And so, if somebody big comes to a bank and says, “I want to do this big option trade,” you can’t turn them away. You’ve got to take the other side of that bet. You’ve got to try and lay it off as much as you possibly can. And one of the ways is by buying the stock long. So, there was this conspiracy theory. It’s now been shown that it was probably Massa in there buying but it’s Masa with a whole lot of Robinhood behind. So, Masa is like $4 billion long.

But then, Robinhood is another $50 billion, not in the notional, $50 billion in premiums. So, he’s a big portion of that market, but not that entire market. But it’s come out on Friday in the Wall Street Journal and a few other places that he’s the one who’s been behind all of this, presumably because he got a little bit behind. He’s had [unintelligible [00:04:25] in a few of the little– stubbed his toe on a few other things. And maybe he’s trying to play catch-up. And so, one of the comments that I saw I thought was interesting was Masa’s not so much a tech visionary as a speculator, do you think that’s fair given the latest trade?

Bill: Ooh, I don’t know. I’m not going to– whoever that is on the Twitter machine that goes under Masa Son cap, I’m not trying to make enemies.

Tobias: [laughs] Do you think that’s Masa?

Bill: I don’t know. Dude, I have no idea. That’s certainly– it feels Icarusy, doesn’t it?

Jake: I feel like we have to know a lot more about strikes before we can say a whole lot.

Bill: We’re on a pod, dude.

Jake: We don’t know where they’re– I know, you just got to speculate wildly but–

Bill: Hot takes!

Tobias: There is also some suggestion that he might have sold some calls to get into those positions, so he sold the calls further out of the money and so that’s where you would sell a stock presumably and so you fund the calls a little bit, which is pretty smart trade. That’s not– and there’s no reason why–

Bill: [crosstalk] –spread for those at home.

Tobias: There’s no reason why putting those trades on isn’t a good trade, it’s size.

Bill: [crosstalk] –month, there was different durations.

Tobias: Didn’t have the detail in the article that I read.

Bill: Come on, Wall Street Journal. Come on. Yeah, I don’t know, man. I don’t know. That options markets, that’s some scary shit if you don’t know what you’re doing.

Tobias: I think it’s scary if you do know what you’re doing.

Bill: Yeah, no doubt. No doubt. I had a buddy that called me up and he’s like, “I think this stock’s going up and I’m going to buy the calls.” I said, “Do you have any idea what happens if volatility comes in on you on that stock?” And he was like, “What’s that?” I was like, “Don’t do it. Do not do it. You’re paying a lot for the air there.”

Jake: Well, that brings up a good point, though. Tesla today now is, I don’t know what the latest is, but off 16 or 17– [crosstalk]

Tobias: It’s back to where it was on 11 August. It’s back to where it was a month ago.

Jake: Yeah. But I think there’s a lot of potential for schadenfreude in this game. And I think we would be doing a good service if we encourage people not to take too many victory laps here. Honestly, you can feel bad for the people, even though I know there was a lot of overconfidence going into it and a lot of YOLO, what seemed like–

Bill: Bruh, are we saying that people are dunking on people because of one day? Because last time I checked, it still doubled since February 21st, which was a pretty high point.

Jake: Yeah, but there’s probably a lot of people who are in calls there that are going to expire.

Bill: Yeah, no doubt.

Jake: And they thought it was going to keep going. Those are going to be huge losses. And probably more likely, money that those people actually needed. So, I’m just saying, here’s a chance to be a little bit more compassionate, human, and not feel– This game is humbling. And unfortunately, some people are going to be learning that the hard way. So, let’s try to lift each other up instead of just tear each other down.

Bill: This is part of what my beef is with my perception of Robinhood’s fundamental product. My perception, which is not truth but its perception, is that they tend to benefit from driving a little bit riskier behavior such as margin loans and trading options. And people that don’t know what they’re doing, which I’m sorry– if you’re growing that fast, I find it hard to believe that the pool of investment professionals are just like going to your product. It’s on average, people that are less sophisticated. That is a dangerous fucking combination.

That’s what I’m trying to use whatever voice that I have on Twitter to say like, “Do not do this shit, especially now, especially chasing froth.” People are probably– I don’t know, I know that I said something that really triggered Mr. Lieberman once. I apologize if you have done all your due diligence and you’ve determined that the due price is the price to buy at. A lot of people aren’t doing that. Don’t play that game. That’s my message.

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