New Trade Reported by “Free Market” Nancy Pelosi – MU Calls

Nancy Pelosi has been busy in the stock market. On Tuesday, we discussed her recent near $1mm investment into GOOGL using call options. As we mentioned then, the trades disclosed in Pelosi's reports have done remarkably well over the last two years. One of the reported trades made a cool $5.3 million for the Pelosi family.

Now, we turn our attention to another trade she disclosed in a recent report. And this one easier for the average investor to get into.

It is also, however, a little bit more eyebrow-raising than the GOOGL trade. With the U.S. economy experiencing a massive chip shortage, Congress has considered legislation to reduce its dependency on foreign semiconductor producers.

In fact, Biden has called for a $50 billion boost to the U.S. Chip industry according to the Wall Street Journal.

And if you haven't guessed it already, one of the trades Nancy Pelosi reported is an estimated $435,000 investment into a semiconductor manufacturer.

But you can copy this trade with $4,570.


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Micron Technologies (MU) – Purchase on December 21st, 2021

Trade: Pelosi reported a purchase of 100 call options with a strike price of $50 and an expiration date of 9/16/22.

Total invested: Estimated $435,000

Pelosi’s purchase of a call with a $50 strike price while the underlying stock was trading for $90.68 means that these call options are “in the money,” giving the option “intrinsic value.”  This is traditionally a much safer bet than buying options that are far out of the money (OTM). It is a bet that MU will continue to go up.

The report that Pelosi files doesn't given an exact amount of investment. Rather, it gives a range. In this case, the range is between $250,000-$500,000. The intra-day range of this call option was $42-$45 on 12/21, so I have used the middle of that range to estimate her purchase price. Since Pelosi placed this trade, the value of these calls has risen from an estimated $43.50 to $45.70.

Market Analysis

Before we get into Micron Technologies itself, I have to address the elephant in the room: the chip shortage.

This is a wildly popular topic of conversation both in politics and in the investment community alike. Like Pelosi apparently, we are big fans of this stock. I wrote up this stock just two days after this trade was made and before it was disclosed. A political insider making this trade when there are potential political implications are both reassuring as an investor, and certainly eyebrow-raising as an American citizen.

As we discussed on 12/21, Intel (INTC) CEO Pat Gelsinger has echoed his previous comments on the semiconductor supply shortage, according to the Nikkei Asia news service. While manufacturers have taken attempts to enhance production, he said the company expects the current problems to last until 2023.

He has previously stated that the corporation would increase its production capacity in Malaysia to assist alleviate some of the shortages.

While Gelsinger believes that these initiatives will assist to alleviate current supply-chain issues, the pandemic's influence on the sector might cause significant disruption.

Prior to COVID-19, the sector had been growing at a rate of 5% per year on average. However, the interruptions caused by the epidemic, along with a 20% increase in demand, contributed to a major supply and demand imbalance.

Company Analysis

Micron Technology (MU) is a semiconductor company established in the United States that specializes in memory-based semiconductors.

DRAM stands for dynamic random access memory. DRAM, on the other hand, is a type of computer RAM (memory) that stores data on individual capacitors. As a result, it often takes up less space than other types of RAM to store and transfer data.

As a result, this technology is critical for the data-center industry, as data centers are brimming with computers that process and store data at breakneck speeds.

And, because to the rise of 5G and AI, the need for these facilities is only going to grow, helping Micron in the process.

This is evident in its December earnings report. For the first quarter, the company said its earnings per share were $2.16 compared with the estimated $2.10. Micron’s revenue was $7.69 billion, also greater than the consensus of $7.68 billion.

These figures have the company confident the trend will continue as well. Micron projects that its second-quarter earnings per share may be around $1.85 to $2.05 versus the expected $1.84. The chipmaker also forecast that revenue may be between $7.3 billion and $7.7 billion.

So, while it will take time for companies in the space to boost their overall capacity, Micron should continue to see strong demand. This is especially true considering the company is already shipping units at a higher level than it did in 2019 – bolstering businesses’ overall reliance on Micron moving forward. 

I know most people don't have $4,570 to place on options trades. If that sounds like you, you may be interested in the message below.

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