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Inside Paul Pelosi’s $5 Million Alphabet Options Windfall

Did Paul Pelosi, the financier husband of House Speaker Nancy, profit off of insider Beltway scuttlebutt in June to make about $5 million on options contracts tied to Alphabet’s stock?

Late on Wednesday evening, Bloomberg News published a report titled “Pelosi’s Husband Locked In $5.3 Million From Alphabet Options,” which carried the subheadlines, “Action was week before House panel considered antitrust bills,” and “Antitrust bills target Alphabet’s Google, Apple, Amazon.” The Bloomberg report followed a Fox Business News piece looking at Pelosi’s June trades, which were laid out in a July 2 disclosure form.

Both stories raise a connection between Pelosi’s trades in Alphabet and a House Judiciary Committee’s vote on a number of antitrust efforts aimed at big technology titans like Alphabet, Amazon, Apple, Facebook, and Microsoft. Some of the bills, which advanced from the subcommittee in July, seek to limit the market power or break up the companies entirely. After politically charged investigations of Senators’ stock trades in 2020 at the onset of the Coronavirus crisis, sleuths now comb the financial disclosure forms of congressional leaders for hints of insider trading.

When asked by Bloomberg, Speaker Pelosi’s spokesperson Drew Hamill said, “The speaker has no involvement or prior knowledge of these transactions.”

So was there anything improper about Mr. Pelosi’s trades? A few critical details indicate not. In fact, the story seems to be that he made one heck of a trade.

The trades in question involve 40 call options on Alphabet’s stock at a strike price of $1,200, which were exercised on June 18, a few days before the House subcommittee convened. The contracts gave Pelosi the right to convert his 40 call options into 4,000 Alphabet shares at a price of $1,200. Because Alphabet was trading at about $2,550 when the options were exercised, they were substantially in the money and are now worth about $5.4 million.

Left out in the Bloomberg piece is an important detail. Mr. Pelosi had to make the trade.

His options were set to expire on June 18, 2021, according to the disclosure report, the day when he exercised them. In fact, Pelosi only had two choices: Sell his options, or exercise them. If he did nothing, his brokerage would likely have closed or exercised the options anyway. Thus, Pelosi’s Alphabet trade on June 18 was an inevitability, whether the House subcommittee was meeting, or not. 

Regardless, the trade is quite a windfall. Instead of some insider dope, he seems to have made a string of gutty trades that generated millions in profits.

The options in question were acquired on February 27, 2020, just as global financial markets began their Coronavirus-induced plunge. On that trading day, Alphabet fell as low as $1,314 a share, where it closed.

Pelosi, apparently bullish on the company’s search and advertising businesses, bought slightly in the money options expiring about sixteen months later. In an option, a trader pays an initial premium to gain the right to buy 100 shares of an underlying stock at a predetermined price in a specified period of time. The premiums can be a cheap way to gain exposure to a lot of stock.

In the case of Alphabet, Pelosi nailed it: His premiums may have only cost a few hundred thousand dollars. And he held his Alphabet options as long as possible, riding the company’s 40%-plus gain in 2021. 

Other trades in the disclosure report look like big winners. On Feb. 20, 2021, he purchased 100 calls in Microsoft at a strike price of $140 expiring in March 2021. When the market fell further, he added 150 more contracts with a $130 strike, also expiring in March 2021. By expiration, Microsoft’s stock had shot up 75% to about $230. 

Pelosi seems to deploy a LEAP option strategy of building low-cost exposure to a few large-cap tech stocks using options, buying slightly in-the-money contracts expiring in 12-to-18 months.

New trades Pelosi has put on like calls in semiconductor Nvidia, e-commerce giant Amazon, and iPhone-maker Apple are already making money.

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