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December 19, 2012  Wed 10:38 AM CT

LNG: SEE CHART GET CHAIN FIND STRATEGIES
As Cheniere Energy heads back toward its highs of the year, a large option trade is betting that the stock will hold recent gains.

optionMONSTER systems show that 5,000 June 15 puts were sold in less than a minute this morning, led by a print of 3,952 that went for $1. The volume dwarfed the strike's open interest of just 150 contracts at the beginning of the session, so this is clearly a new position.

The put selling is based on the thesis that LNG will be above $15 at the time they expire in six months. The trader will face the obligation to buy shares if they are below that strike price at that time, though the effective purchase price would be $14 including the credit from the put sale. (See our Education section)

LNG is up 1.34 percent at $18.20, on pace for its highest close since setting the four-year high of $18.74 in late April. Shares of the liquefied natural-gas company were down at support at $14 just over a month ago.
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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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