One of the most notable winners from the surge in Nvidia Corp. (ticker: NVDA) shares, driven by the ongoing artificial intelligence, or AI, arms race, was former House Speaker Nancy Pelosi.
In December 2023, Pelosi disclosed an earlier transaction made on Nov. 22, when she opted to go long on 50 Nvidia call options with a strike price of $120 set to expire on Dec. 20, 2024. But to fully understand the significance of this trade, it's essential to grasp a few key concepts about options trading.
Each call option contract typically represents the right to buy 100 shares of the underlying stock at a predetermined price, known as the strike price, before the contract expires. Therefore, by purchasing 50 call options, Pelosi effectively controlled the right to buy 5,000 shares (50 options x 100 shares per option) of Nvidia, therefore giving her leverage with a smaller outlay of capital.
Related:
The strike price of $120 is particularly noteworthy because it was well below Nvidia's trading range of $476.90 to $503.35 on the day of the transaction. An option is considered "in the money" (ITM) when the strike price is below the current market price of the underlying stock for call options.
Being ITM means the option has intrinsic value, as the holder can buy the stock at a price lower than the market value. Essentially, Pelosi's choice of an ITM strike price amplified the potential profitability of her investment, given Nvidia's strong performance and upward trajectory in the stock market at the time. By being in the money though, it also provided a degree of downside protection that out-of-the-money options can't provide.
Featured Brokers
SoFi Invest
Account Minimum
$0
Fee
$0
Active investing with SoFi makes it easy to start investing in stocks and ETFs.
Interactive Brokers
Account Minimum
$0
Fee
$0
Low commission rates start at $0 for U.S. listed stocks & ETFs*. Margin loan rates from 5.83% to 6.83%.
View Disclosure
Robinhood
Account Minimum
$0
Fee
$0
No commission fees to trade stocks, options or crypto, and no account minimums to start.
Following another impressive earnings report, Nvidia's shares soared to $788.17 on Feb. 23. While the precise profit Pelosi garnered from this trade remains undisclosed, the leverage inherent in call options likely resulted........