Former House Speaker Nancy Pelosi well-outperformed the market in terms of her personal investments in 2023. The 83-year- old Democrat from San Francisco realized a 65 percent return on her stock portfolio – the S&P 500 meanwhile only saw a 24 percent overall return in 2023. Pelosi’s market success last year is even more remarkable as in 2022 her portfolio actually took a hit of nearly 20 percent.
Pelosi’s financial disclosures indicate that the questionable use of ‘stock options’ was the primary driver of her portfolio’s turn-around. When using stock options, an investor has the right to buy-or-sell a stock at an agreed upon price at a set date. The two types of options used by investors are ‘puts’ and ‘calls’. A ‘put’ is when an investor essentially makes a bet a given stock’s price will fall. A ‘call’ is when they bet the price will rise.
Options Trading Or Insider Trading?
Stock options are most frequently used by major investment firms and professional traders who can dedicate a great deal of time and resources to find arbitrage opportunities where a ‘put’ or ‘call’ could drastically increase the return for them and their investors. However, the use of options also comes with a great deal of risk, as placing the wrong bet could be financially devastating to the investor or firm.
The increased use of stock options by Members of Congress is especially concerning as most are reasonably assumed to be fairly casual investors without a full time staff dedicated to discovering potential arbitrage opportunities. In 2022 options trading generated about $30 million in returns for Members of Congress, but those returns over quintupled in 2023 to $160 million.
Congressional watchdog groups say the increase in options trading is concerning. Jeff Hauser, founder and director of the Revolving Door Project, told the New York Post in a recent interview: “It’s a sign of quasi-insider trading that’s corrupt and should be banned – it’s either an addiction to risk or a sign of corruption.”
Image Credit: Gage Skidmore
