In the markets, there’s the smart money and the dumb money. The dumb money is usually referring to retail traders who are inexperienced and might trade based on what they see on CNBC. Smart money traders are usually the people in the know, such as industry experts.
And the money doesn’t get much smarter than Federal Lawmakers whose decisions impact the economy and thus the markets.
Nancy Pelosi has been in the news recently as her spouse Paul Pelosi has disclosed some very well-timed stock purchases over the past couple of years. Mr. Pelosi is a businessman who runs the venture capital and investment firm Financial Leasing Services and has made countless bets on high-profile companies his wife is supposed to regulate, like Amazon, Apple, and Google. And It just so happens that some of these purchases came before significant news events that significantly affected the price of these stocks.
Unusual options activity such as this can be picked up by scanners such as Dollar Ace, which Ben Sturgill is an expert at using. Ben has been using the software for years and understands what to look for when the smart-money steps in!
In 2007, Nancy Pelosi became the first woman to be elected Speaker of the house. Pelosi has seen the spotlight lately for her spouse’s frequent multi-million dollar options trades.
When asked, “Do you think federal lawmakers should be banned from trading stocks while in office?” Nancy replied, “No. This is a free market.” and quickly moved on to the next question.
Under the STOCK Act, which was passed in 2012 and was supposed to rein in lawmakers’ trades, most members of Congress are still free to make the trades that could conflict with their legislative duties — as long as they disclose the information within 45 days.
The issue of congressional stock trading has taken on new urgency since the beginning of the pandemic when suspiciously timed stock trades by lawmakers in both parties provoked outrage and led to multiple investigations.
In February of 2020, prior to Congress introducing legislation to mandate national covid lockdowns, Nancy Pelosi purchased a large number of options in companies that would benefit from a work-from-home environment. Those purchases included:
- $500,000 of the work-from-home software Slack
- Three separate purchases of over $2,000,000 in Microsoft (MSFT) call options (Microsoft owns Teams, a similar work-from-home software)
- $1,000,000 of call options in work-from-home beneficiary Google
- Over $1,000,000 in Amazon (AMZN) call options which were later exercised
Significantly, the above investments became massively profitable! Later on in the same year (December of 2020), just before President Biden would announce an initiative to give credits to many electric vehicle companies, Pelosi purchased 25 $500 strike Tesla (TSLA) call options expiring in March of 2022. Bought for roughly $750,000, this investment became worth over $1.61 million.
In the same purchase, Pelosi picked up another basket of Microsoft (MSFT) call options. This came two weeks before the U.S. Army would sign a $22 billion dollar contract with Microsoft (MSFT) for their Hololens product. On the sell-side, husband Paul Pelosi sold a $5,000,000 position in Facebook (FB) and other tech giants in the week prior to the House Judiciary Committee voting to press big tech with anti-trust regulations.
While there’s no smoking gun showing that Pelosis traded using insider info, their portfolio has often outperformed the S&P 500.
Progressives including Rep. Alexandria Ocasio-Cortez of New York and Sen. Elizabeth Warren of Massachusetts have slammed members of Congress trading stocks as “brazen” and “ludicrous,” while Republican Arizona Senate candidate Blake Masters recently nicknamed Pelosi “Naughty Nancy” .
Rep. Michael Cloud of Texas is currently pushing two bills that would ban stock trading by members of Congress.
U.S. House of Representatives
The Democratic majority leader and her husband, Paul Pelosi, recently bought millions of dollars worth of call options for stocks including Google (GOOGL), Salesforce (CRM), Roblox (RBLX), and Disney (DIS), financial disclosures published in December show.
The purchases occurred from Dec. 17 to Dec. 21. “We’re a free-market economy,” Pelosi told reporters, adding that members of Congress “should be able to participate in that.”
The Pelosi family’s trades in December include Google (GOOGL) and Salesforce (CRM) call options worth between $500,000 and $1 million each, as well as Roblox (RBLX) call options valued at between $100,000 and $250,000. The duo also bought up between $250,000 and $500,000 in calls for chipmaker Micron Technology (MU) and between $100,000 and $250,000 of Disney (DIS) call options in disclosures that were earlier reported by Congresstrading.com.
This recent market selloff has meant that some of Mr. Pelosi’s purchases in December are a little bit underwater at the moment. However, it is clear that he is bullish on the tech sector. Stocks like GOOGL and Salesforce (CRM) are also some of my favorite and are trading at attractive levels. In fact, I have a put spread sold in CRM as I believe it is extremely oversold and should hold these levels.
Here Is My Trading Plan
CRM is trading sideways as the bulls are stepping in under the 3 std deviation Keltner channel lower band. I want to see this level hold for the put spread to decay as the stock trades sideways or higher from here.
I have sold the Jan 21 220 puts and bought the Jan 21 215 puts. I will collect the premium on this trade if CRM continues to hold above $220 at the close on Jan 21.
One stock that did do well since the last Pelosi disclosure was MU. It was up over 8% at one point after Mr. Pelosi bought call options. Mr. Pelosi must have loved the corporate earnings report as MU beat expectations and this time Mr. Pelosi actually bought AFTER the report was released.
Another stroke of Genius from Mr. Pelosi!
The smart money can provide clues of what might be on the horizon, which is why I make sure to pay attention.
Checking legislative disclosure reports and using Unusual Options Activity scanners like the one our very own Ben Sturgill uses can help me see what the smart money is doing and provides me with added information to help guide my trading decisions.
Now I don’t just blindly follow what Pelosi does, but when my trading indicators line up, and Pelosi is also in the trade, that gives me confidence. After all, it appears that Nancy Pelosi’s husband may just have been a trader of the year in 2021. Will this dynamic duo be able to repeat the trend in 2022?