Cheniere Energy, Inc (LNG) is a company engaged in a variety of liquid natural gas related businesses. The company’s stock is currently trading around $39.40 in a 52 week range of $13.85-$39.98. The stock has been extremely strong this year as shares of LNG have rallied nearly 110% year to date and over 146% in the past 12 months. Recent action in the options market is suggesting that this run will continue through next year. Yesterday a trader bought 12,500 LNG Mar 40-50 call spreads for $2.68 and sold 7,500 Mar 31 puts for a $1.00. This is an extremely bullish trade that indicates this trader’s high level of conviction in LNG. The short put component of this trade is extremely risky and suggests that this trader has a strong belief the stock will continue higher through March expiration. The stock is also looking very strong on a chart. Shares of LNG are trading well above the Ichimoku Cloud but are just off of their 52 week highs. The cloud is strongly upward sloping ion the future indicating the stock should remain in in bullish territory. We believe that the unusual option activity yin LNG coupled with its strong chart present us with an opportunity for a long term trade in LNG. We will look at a long term options trade that will allow us to use the inherent leverage of options to take a bullish view on LNG in a very capital effective way.
Trade: Buying the LNG Mar 40-50 Call Spread for $2.75
Risk: $275 per 1 lot
Reward: $725 per 1 lot
Breakeven: $42.75
