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Cheniere Energy Option Traders Forecast Additional Gains

LNG's March 23 call was in favor on Wednesday

by 1/31/2013 10:11 AM
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Calls were the options of choice on Cheniere Energy, Inc. (NYSEAMEX:LNG - 21.29) on Wednesday, with optimistic option players placing bets the stock will continue to move higher in the near term. Approximately 37,000 contracts changed hands on the day, nearly tripling the average daily call volume. By comparison, around 7,500 puts traded.

The most active strike by far was LNG's March 23 call, which saw close to 13,400 contracts cross the tape. The majority of these went off at the ask price, implied volatility rose 5.1 percentage points, and open interest added 12,362 contracts overnight, pointing to the initiation of new bullish positions.

In order for these bets to be profitable, LNG must rise 10.7% above current levels to topple breakeven at $23.57 (strike plus volume-weighted average price of $0.57) by the close on Friday, March 15, at which point back-month options will expire. At yesterday's close, delta for this call was docked at 31%, implying a roughly 1-in-3 chance this option will finish in the money by the time March expiration rolls around.

For a stock that's up nearly 54% from its mid-November low of $13.85, calls have been preferred over puts on LNG for some time now. During the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 91,889 calls, compared to 16,333 puts. The resultant call/put volume ratio of 5.63 ranks higher than 73% of other such readings taken in the past year, suggesting a healthier-than-usual appetite for bullish bets over bearish in recent months.

To the delight of yesterday's call buyers, LNG has moved 0.5% higher in early trading, and was last seen lingering near $21.29.


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