You won’t believe the insane profits mystery traders are making from the debt ceiling deal!

Analysts on Wall Street had largely expected that a bill raising the US debt ceiling would contain vague promises about energy permits. Still, options trading suggests that something bigger may be at hand.

On May 24 – several days before an agreement was announced – a large upside bet was placed on Equitrans Midstream Corp. completed, according to data compiled by Bloomberg. The Company has a significant interest in the long-delayed Mountain Valley Pipeline. The bet was to purchase 100,000 call options on the company’s stock.

It proved forward-thinking and hugely profitable within days.

On May 27, the White House and Republican lawmakers met reached A deal that would give the long-delayed Mountain Valley Pipeline the final permits needed to complete the project.

Throughout April and much of May, White House and Congress negotiators debated the broad parameters of an agreement. Almost to the end, the details remained secret and in flux. Doubts remained as to whether an agreement would be reached before the US ran out of money in early June.

signed the bill

The law, signed into law by President Joe Biden on Saturday, forced action on the project’s permits. On paper, the bet appears to have netted $7.5 million as of Friday. It has some questions whether more than skill and luck played a role.

“My questions are: Who is the dealer? How demanding are they? And what are their ties to the government?” said Donald Sherman, chief adviser to Washington’s Citizens for Responsibility and Ethics agency. He added that the bet raises the specter of whether the parameters of the debt deal were somehow leaked ahead of schedule.

It is notoriously difficult to determine whether a trade is improperly based on confidential information, particularly when it comes to market-moving government news. The rules are also full of gray areas and ambiguities.

Confidential information

Officials, including members of Congress, are prohibited from trading in confidential information obtained in their position. But if, for example, someone overhears a congressman vociferously mentioning information on the train, they probably understand.

“The challenge for investigators is not only to determine whether information has been disclosed, but also to uncover the intent of the disclosure,” said Philip Khinda, head of SEC Enforcement at Cadwalader. “These are very difficult cases to bring, as they involve both legal and investigative complications.”

No one has been accused of wrongdoing in options trading. A representative of the Securities and Exchange Commission, which would oversee any investigation, declined to comment on whether it is investigating the matter.

Still, the call options are attracting a lot of attention because of their timing – just ahead of the debt ceiling agreement. The $8 exercise price is also roughly in line with some Wall Street analysts’ valuation of Equitrans’ Mountain Valley pipeline.

Long Delay

Before the debt deal, the prospects for the Mountain Valley pipeline project had been bleak. Legal disputes with environmentalists have raged for years. Equitrans shares have fallen 35% over the past year.

After the surprise announcement that the pipeline was about to get a boost, Equitrans roared back. Shares surged 49% last week, a record.

“These deals are extremely worrying,” said Dan Taylor, a Wharton School professor who studies insider trading. “The question arises whether it is actually a coincidence.”

Equitrans said neither the company nor any of its executives were involved in the transaction. In a statement, the company also hailed the pipeline as “essential energy infrastructure that ensures American families reliable and affordable access to domestic energy” that will actually help reduce carbon emissions and increase energy security.

Of course, the project has strong advocates. Senator Joe Manchin, a Democrat representing West Virginia, where the pipeline will run, has been a longtime supporter. He celebrated the project on Friday and said further Twitter that it was “truly America’s ‘MVP’,” an obvious reference to the project’s initials.

When asked about options trading, Manchin said, “I have no idea about that.” He added, “The only thing I know is that people need power.”

Growing fortune

Trade aside, the inclusion of the pipeline in the Debt Ceiling Act was a political lightning rod.

Democratic Senator Tim Kaine of Virginia, whose state the pipeline also traverses, offered an amendment to remove it from the debt deal. That attempt failed on Thursday.

White House officials and House Speaker Kevin McCarthy, who is leading negotiations for the GOP, did not respond to requests for comment on the trade Saturday.

“The surprise was that it was actually included in the debt ceiling bill itself and wasn’t part of a separate vote or promise to pass another bill,” said Citi analyst Spiro Dounis, who monitors Equitrans.

The options underlying the trade appear to be pending. This suggests that no one has cashed the bet yet and the win could get even bigger if the rally continues.

–Featuring Ari Natter, Gerson Freitas Jr., David Marino, Joe Ryan, Laura Litvan and Jordan Fabian.