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October 15, 2013  Tue 12:05 PM CT

LNG: SEE CHART GET CHAIN FIND STRATEGIES
Cheniere Energy is already up 39 percent in the last two months, and traders continue to pile in.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 9,000 January 2015 35 calls in the natural-gas tanker stock for $8.20. Equal-sized blocks were sold in the January 2015 30 puts for $3.20 and the January 2015 50 calls for $2.85. Volume was more than twice open interest at all three strikes, indicating that a new trade was initiated.

The strategy combines a bullish call spread to leverage a rally with short puts to earn income. It cost $2.15 and will expand to $15 if LNG closes at or above $50 on expiration--profit of 598 percent. The investor is also on the hook to buy shares for $30 if they close below that level on expiration 15 months from now. (See our Education section)

LNG is up 1.75 percent to $37.25 in afternoon trading and has been rallying since heavy call volume lit up the Heat Seeker back on Sept. 5. The company has consistently reported quarterly losses but controls the Sabine Pass LNG terminal in Louisiana, making it a key player in the future natural-gas export industry.

Overall option volume is 5 times greater than average in the name so far today, according to the Heat Seeker. That bullish three-way trade accounts for roughly half the total.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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