Sen. Tommy Tuberville (R-Ala.) on Nov. 16 disclosed that he bought three lots of Tesla put options and sold Tesla stock on Oct. 17, a day before the electric vehicle giant reported its quarterly results. With Tesla’s shares rallying strongly in recent sessions, the senator’s put option trade has become worthless.
What Happened: The senator bought three tranches of put options, with each amounting to $1,001-$15,000 and having a strike price of $190 and an expiration date of Dec. 15, 2023.
Tesla shares went downhill following the announcement of its quarterly results, as the company reported a double miss due to a further erosion in auto gross margins. Priced at $242.68 before Tesla’s third-quarter earnings release, the company’s stock fell to a low of $194.07 on Oct. 31 and later rebounded from the level.
The stock has since recovered alongside the broader market and settled Friday’s session at $253.50, according to Benzinga Pro data. The trough-peak move was a positive 30.6%.
See Also: Everything You Need To Know About Tesla Stock
Why It’s Important: A put option gives a holder the right, but not the obligation, to sell a certain amount of an underlying security at a specified price within a particular time frame. It becomes a profitable bet when the value of the underlying security declines. It is often used as an investment insurance or hedge to ensure that losses in the underlying asset do not exceed a certain amount.
Given the rise in Tesla’s stock price above his put options’ strike price, Tuberville may not have exercised his options. A sale on the expiration date would have deprived the senator a profit of about $2.86 million, relative to a stock trade on that date.
When Tuberville’s trades were brought to the attention of Tesla CEO Elon Musk on X, the social media platform Musk owns, the billionaire tech entrepreneur had a three-word reply.
“Gluttons for punishment,” he said.
Trading by several Congress members has drawn increasing scrutiny, given their potential access to insider information as members of various committees.
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