Someone is using options to ride the trend of U.S. natural gas exports.
Market Insights previously covered a large trade in Cheniere Energy (LNG), whose tankers to export liquefied natural gas around the world. At the time, the investor was rolling a bullish position forward in time. Today, they extended their trade further out in time:
- A block of 13,000 September 67.50 calls was sold for $1.69 and an equal number of September 75 calls was bought for $1.69. This seemed to represent the closing of a bullish call spread opened on May 9.
- At the same time today, 13,000 December 70 calls were bought for $3.30 and 13,000 December 80 calls were sold for $0.82. This looks like a new bullish call spread to replace the previous one.
What’s going on? First, owning calls fixes the price were a security can be purchased. Selling them generates income and creates an obligation to deliver shares if a certain level is reached by expiration.
Second, you can combine these two strategies into a vertical call spread. That gives you the right to potentially leverage a move between two levels. (See our Knowledge Center for more.)
Previously, they expected a rally from $67.50 to $75 by the third Friday of next month. Now, they’re looking for a move through $70 to $80 by December 21.
LNG is currently up 2.26 percent to $66.58 in early afternoon trading. It’s appreciated 24 percent so far this year.
The bullish transaction appeared as trade tensions between with Europe and Mexico showed signs of improvement. It also comes after President Trump chided Germany for buying energy from Russia instead of the U.S.
On background, exports have been spiking as gas from domestic shale deposits finds its way to recently built compression facilities in the Gulf of Mexico. Government statistics show Japan, China — even Jordan and Kuwait — are among major buyers.
In conclusion, U.S. natural-gas exports are on the rise and options traders are want to playing the move with LNG.