Will This $20 Million Bet Pay Off?

A report just came out that one trader bet a massive $20 million on a single stock rising by 30% on its next earnings report. That stock is, drumroll, artificial intelligence favorite, Nvidia.

The bet was made by purchasing strike 1180 call options on Nvidia for the June expiration, meaning if NVDA share price rise were to rise above that level on expiration day, the trade would be in-the-money, otherwise the options would expire worthless.

So what are the odds the bet will pay off?

Key Points

• One trader has bet the farm on Nvidia, putting a $20 million bet on that the share price will be 30% higher by June’s options expiration.
• Stanley Druckenmiller, who bet on Nvidia when it was under $200 per share, remains heavily invested in the stock.
• Stanley and the trader are aligned in their forecasts for Nvidia price to rise but the trader must be right short-term to win.

Will Nvidia Soar?

Arguably, the best investor of all time isn’t the man you first springs to mind, Warren Buffett. The reason Warren may not rank at the top of the list is that his portfolio has experienced substantial drawdowns over time whereas another investor managed to keep his portfolio in the black for his entire career.

That person is Stan Druckenmiller, and a close examination of his portfolio might reveal whether the trader betting $20 million on Nvidia June call options will win big.

Druckenmiller, who retired from managing other people’s money and now manages just his own as part of Duquesne Family Office, bet big on Nvidia early on. He spotted before most others the potential for artificial intelligence to be massively disruptive and made an astute bet that Nvidia would be a winner. That’s when it was trading at $184 per share.

Fast forward to Nvidia 5x’ing and what do we see when revisiting Druckenmiller’s portfolio? Remarkably, he is holding a huge stake in Nvidia still. While Microsoft and Coupang eclipse Nvidia as larger portions of his portfolio, Nvidia ranks third overall, meaning that Stanley has remained committed to the company throughout its meteoric rise and doesn’t appear willing to cash in his chips yet.

In an interview he commented that a lesson he learned during the late 1990s was how far and how high stocks related to disruptive technologies could go. Much higher and much longer than most anticipate was his takeaway. If Nvidia is going to be the powerhouse that supports the AI revolution then its stock is unlikely to rise for a year or two, it could last more like 3 or 4 he commented.

If he’s right, the trader betting $20 million on Nvidia is likely to be on the winning side of the trade, but there is one caveat.

1 Gotcha To Note

The difference between Stanley’s bet on Nvidia being a winner over a 3-4 year period and the trader betting on June call options is in the timing. If Nvidia fails to impress during that earnings report, the stock is already priced to perfection and may well experience a selloff.

Stanley can largely ride out the waves of volatility in the stock because his thesis is longer term whereas the trader must be right short-term in order to win and is suffering from the options decay occurring daily in the interim.

So while the trader may be right on price, at least Stan Druckenmiller would probably think so if we understand his forecast correctly, he may be wrong in time, and that’s where the advantage lies in buying a stock that has a solid thesis long-term but is riddled with volatility versus buying call options on such a position, which is more akin to a coin toss.