Bulls Target NatGas Stock on China Deal, 'Ice Age' Talk
Cheniere Energy is usually a thinly traded energy stock, but earlier this week it was near the top of OptionMonster's tracking systems.
The call buying began early and continued throughout the session, focusing mostly at the March 8 strike. They fetched $0.20 in the morning but rose to $0.30 by the close. Volume surged past 11,400 contracts, more than 75 times open interest when trading began.
The stock rallied as the calls hit and ended the session up 5.79 percent to $5.67.
The company transports liquefied natural gas, which explains its ticker symbol: LNG. It's an extremely expensive business involving large tankers and terminal facilities, so Cheniere has always required huge amounts of debt to finance its operations. Last quarter, it owed 35 times more than it had cash on hand.
Like many leveraged companies, such as DryShips, Cheniere traded at extremely depressed levels after the 2008 mortgage crisis. Since then the credit market has improved, and many of these companies have doubled and tripled many times over.
Recent trading action suggests a similar trend could now be taking hold in Cheniere. The stock exploded higher on Nov. 11 after saying it was working on a deal to export natural gas to China. It tore through the $5 level that had been resistance since late 2008, then pulled back and found support above $5.
Furthermore, this is expected to be an extremely cold winter. One scientist who has accurately predicted weather patterns now anticipates 25 years of cold weather: a mini-ice age created by reduced solar output. If anything close to that pans out, the United States could become a major exporter of natural gas to places like Western Europe.
On top of all that, short interest stood at about 30 percent of the float in Cheniere at the end of November. That could drive the stock higher into the New Year.
Overall option volume in the name was 51 times greater than average yesterday, with calls outnumbering puts by more than 105 to 1.
Russell owns LNG shares.
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David Russell is a reporter and writer for OptionMonster.