Options Trading News

June 21, 2013  Fri 12:20 PM CT

Cheniere Energy has had an amazing run, and now investors think it might be running out of gas.

optionMONSTER's Depth Charge monitoring system detected the sale of 14,000 September 31 calls for $0.58 and the purchase of an equal number of September 20 puts for $0.48. Volume was more than 5 times open interest at both strikes, indicating that new positions were initiated.

Owning puts ensures a minimum sale price, in this case $20, while writing calls obligates the trader to unload shares at a maximum level, in this case $31. He or she probably owns the natural-gas tanker's stock and is using the strategy, which is known as a collar, for protection.

LNG is down 0.87 percent to $26.21 in afternoon trading but has appreciated more than 700 percent in the last three years. It's been ripping higher as the company prepares for a boom in natural-gas exports from the United States. But its momentum has been slowing in recent months, which could be leading some chart watchers to believe that the stock is losing its mojo.

The collar lets the investor time a potential exit until September--possibly for tax purposes--while staying in in the game for new highs LNG rebounds. (See our Education section for other hedging techniques.)

Total option volume in the stock is quadruple the daily average so far today, according to the Depth Charge.
Share this article with your friends

Invest Like a Monster - San Antonio: October 9-10

Premium Services

Archived Webinar

Education & Strategy

The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

View more education articles »