Monday, January 3, 2011

Cheniere (LNG) - Calls Trade Size Again, Earnings Bets Roll In

LNG is trading $5.99, up 8.5% with IV30™ up 2.3%. The LIVEVOL™ Pro Summary is below.


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LNG is an energy company primarily engaged in liquefied natural gas (LNG)-related businesses. This was a ~$2.50 stock a couple of months ago.

The company has traded over 11,000 contracts in the first hour on total daily average option volume of just 1,688. All but 29 contracts have been calls, yielding a 379:1 call:put ratio. The action is in the Mar 9 calls, where 10,000 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls in March are mostly opening (compare OI to trade size). We can also see the huge OI in the Mar 8 calls. If you go to the Options Tab and click on the strike, you can see the OI chart (included below). Holding the mouse button down shows us that those calls opened on 12-29-2010. Earnings are projected for the March cycle.

So in the last few trading days, more than 20,000 calls in Mar have opened, and I see them as substantially long interest. The Skew Tab snap (below) illustrates the vols by strike by month.

As expected, we can see the upside skew is bid for Jan, Feb and Mar. I've highlighted the 8 and 9 strikes in March. I'll repeat again, this was a ~$2.50 stock in October and now the Mar 8 and 9 calls have 20,000 long interest.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the stock rip up in late Nov and pretty much hold onto those gains. It feels like the IV30™ can go higher given this order flow and the past stock movement. HV30™ is over 100 (ok, it's 100.46, but that's till over).

Possible Trades to Analyze
If you want to play this upside, here are some interesting trades:

1. Buy the Feb/Mar 8/7 call spread:
Sell 1 Feb 8 call @ $0.15.
Buy 1 Mar 7 call for $0.60.
That's just $0.45 to own the upside in March (earnings cycle) where the order flow is. Then again, this is a $6 stock.

2. Just trade March:
Buy the Mar 7/8 call spread for $0.20 if possible. A nice cheap bet siding with order flow.

3. Slightly Contrarian and taking on the risk:
Buy 1 Mar 7 call for $0.60
Sell 2 Mar 9 calls @ $0.25
This is a $0.10 outlay, but is naked upside above $11 (ish).

This is trade analysis, not a recommendation.

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