Yes Virginia, the system is clearly rigged

The surge in purchases of call options — derivatives that give the user the right to buy a stock at a pre-agreed price — has been the talk of Wall Street, as the sheer size of the trades appears to have exacerbated a “melt-up” in many big technology stocks over the past few months. In August alone, Tesla’s share price shot up 74 per cent, while Apple gained 21 per cent, Google’s parent Alphabet rose 10 per cent and Amazon 9 per cent.

One person familiar with SoftBank’s trades said it was “gobbling up” options on a scale that was even making some people within the organization nervous. “People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

  1. How many of Softbank’s service providers refused to execute their trades? How many banks, prime brokers or options dealers said “sorry, this a dangerous strategy that will end badly, plus it puts the rest of the market at risk. You can no longer buy call options on these particular stocks”?
  2. How many veteran financial reporters working in TV or print expressed shock and outrage? How many pontificated out loud about the blatant disregard for fundamental analysis?
  3. How many people at the SEC, Federal Reserve, U.S. Treasury or even the White House actively monitored the situation and worried about the safety of the market?
  4. How many people within the traditional financial establishment argued that perhaps we need tighter regulations to prevent this sort of thing from happening?

A more detailed explanation: Brokerages post money with the D.T.C.C. to cover customers’ transactions while they wait for the trades to settle. With such a big surge in trading, the clearing hub wanted more assurance: “It’s the D.T.C.C. saying ‘This stuff is just too risky,’ ” said the Bloomberg Intelligence analyst Larry Tabb.

Other online brokerages also cited the D.T.C.C. as a factor in decisions to impose trading restrictions.

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