Just hours before it was revealed Silicon Valley Bank – the 18th largest bank in the U.S. – is on the brink of bankruptcy, one options trader executed a trade that would turn $4000 into just over $1.2 million.
On Tuesday March 7 just after 11:00am Pacific Standard Time, trading data shows the trader purchased $4000 worth of Silicon Valley Bank (NASDAQ: SIVB) put options with a strike price of $200, expiring on 3/17/2023. They took out all volume available at the 13 cents per contract asking price, within minutes.
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Just over 24 hours later on Wednesday, the bank announced it needed to undertake a $2.25bn share sale (over one third of its market cap) to stave off bankruptcy – after a larger than expected fall in deposits and taking a $1.8 billion loss in a fire sale of U.S. treasuries and mortgage-backed securities.
The news prompted fears of a bank run, and caused the Silicon Valley Bank stock price to plunge by over 60%.
For that sole March 7 buyer of the SVB puts, however, it was payday.
The $0.13 cent contract price of the puts exploded to $39.10, as the Silicon Valley Bank stock price plunged to under $160.
Publicly available data shows the trader exited their position Thursday morning, turning $4000 into over $1.2m in 48 hours.
The trade was brought to the attention of Asia Markets by the @unusual_whales Twitter account.
One trading veteran at a prominent Hong Kong-based hedge fund who didn’t want to be named told Asia Markets the timing of the trade makes it look “highly suspicious”.
“There’s no doubt it’ll be looked into, but even with KYC [know your customer] protocols there can still be difficulty tracking some trades depending on the type of platform its executed on,” the trader said.
“I would put it in the highly suspicious bucket, rumours about trouble at SVB have been swirling for a while, there would have been a lot of people who knew what was coming, but it could just be a case of luck too.”
SVB bank run fears
While there’s one options trader with a bank account now in rude health, there are growing concerns about the health of U.S. banks.
SVB was a major lender to technology start-ups and the U.S. technology sector has been one of the biggest losers in the new rising interest rate and inflationary environment, as the cost of capital rises exponentially.
Investors are now concerned about an SVB bank run as depositors question the long term viability of the bank, and there’s further concern more dominoes will fall within the top-20 U.S. banks.
“Government intervention should be considered,” warned billionaire investor Bill Ackman on Thursday.
“SVB could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive Government-preferred bailout should be considered.”
Macro analyst Andreas Steno Larsen questioned if the SVB bank problem is a “Bear Stearns moment” – a reference to the New-York-based investment bank that collapsed in 2008 which was widely seen as a prelude to the 2008-09 financial crisis.
“The question is if this [SVB bank trouble] is… a canary in the coalmine,” said Steno Larsen in a blog post.
“Is this Bear Stearns 2.0? There are some similarities size-wize (although Bearn Stearn was more significant). It is tempting to construe this as a signal that the economic cycle is running on the absolute last fumes, but I need to remind you that the equity market actually weathered the Bear Stearns storm well, until the ultimate showdown around Lehman Brothers.
“A bail-out of some sort is to be expected in this case if push comes to shove. No one is willing to allow a Lehman 2.0 on their watch.”
If SVB Financial Group does completely collapse it will be second-largest bank collapse in U.S. history, after the Washington Mutual Bank collapse in 2008.
Timeline of the SVB bank disaster
- February 2023: Rumors surface about Silicon Valley Bank facing pressure on $91 billion in bonds due to rising interest rates. Articles including this Financial Times piece emerged.
- February 2023: SVB announces firesale of $21 billion bond portfolio which is executed at a $1.8 billion loss.
- March 8, 2023: SVB announces $2.3 billion share sale to cover bond losses.
- March 9, 2023: SVB depositors reportedly scramble to withdraw funds as the bank tries to reassure clients their deposits are safe. A SVB bank run is reportedly underway.
- March 9, 2023: Credit rating agencies such as Moodys downgrade the bank.
- March 9, 2023: The four largest banks in the United States shed $50bn in market value as fears spread about the health on the U.S. banking system. SVB Financial Group stock falls over 60%.
- March 10, 2023: Financials and bank stocks across global markets are aggressively sold off amid fears stoked by Silicon Valley Bank.
Related: Silicon Valley Bank CEO Greg Becker sold SIVB stock in January, making a fortune