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Option Brief: Call volume is running at more than five times its typical intraday clip in Cheniere Energy, Inc.'s (NYSEMKT:LNG) options pits. The majority of the activity can be traced to the March 2014 50-strike call, where nearly 58,000 contracts have crossed the tape.
Open interest at that strike consists of roughly 10,000 contracts, and implied volatility has risen, suggesting the creation of new positions. What's more, although 50% of the trades at that strike have gone off at the bid price, Trade-Alert notes that the two biggest blocks that changed hands at the strike -- totaling 49,900 contracts -- were both bought to open.
In purchasing the calls, today's traders are looking for LNG to topple $50 by options expiration next March. From the shares' current perch at $41.56, that's a roughly 20% gain within approximately a three-month time frame. If Cheniere is sitting below the strike at expiration, however, the options will expire worthless, costing the call buyers 100% of the premium they paid at initiation.
At the same time, it must be noted that short interest on the stock rose 9.2% during the last two reporting periods. In fact, short interest now makes up 7.8% of LNG's outstanding float -- or a week's worth of pent-up buying activity. Therefore, it's possible some of today's call buying is the result of the shorts hedging their bearish bets.
Technically, Cheniere Energy, Inc. (NYSEMKT:LNG) is a long-term titan, more than doubling in value this year. However, the shares have never traded above $50, having topped out earlier this month at a record high of $46.39.