Sometimes, it’s best not to overthink things. Admittedly, that’s tough to do on Wall Street. With so much attention geared toward achieving an edge in the market, investors are gravitating toward more data and in-depth analysis, not less. However, it’s critical to consider the broader context, especially under the current presidential administration.
Whether President Donald Trump is your cup of tea or not, there’s one element we can all agree on: he doesn’t present himself as an overly complicated individual. Instead, he shoots straight from the hip, which is the reason why he’s so remarkably successful in the political realm. His no-nonsense approach cuts through the Washington double-talk and red tape. It’s refreshing and that brings us to Cheniere Energy (LNG).
A specialist in liquefied natural gas (hence the ticker symbol LNG), Cheniere received a significant vote of confidence amid Trump’s flurry of executive orders. For LNG stock, the most significant of these actions was ending former President Joe Biden’s moratorium on the commodity’s export permits.
As Zacks Investment Research noted, this move “underscores Trump's commitment to bolstering America’s energy dominance, reversing the Biden-era environmental policies, and prioritizing economic growth over regulatory constraints.”
Another area which could support LNG stock over the long run is Trump’s surprisingly aggressive pivot toward Russia’s war in Ukraine. Rather than cozying up to the Kremlin as many Trump critics feared, the president instead suggested that targeting Russia’s oil revenue may help convince Moscow to end its nearly three-year war.
To be sure, disrupting Russia’s oil revenue doesn’t directly help LNG stock. However, Russia is a major energy player, especially for the European market. A negative impact to the resource-rich nation should be beneficial to Cheniere’s bottom line, making LNG a must-watch investment.
Unusual Options Activity Further Spotlights LNG Stock
To add more incentives to consider Cheniere at the current geopolitical juncture, smart money dynamics suggest a potential boost in market value. One clue came in the form of last Friday’s unusual options volume screener.
Notably, the security had a rough week last week (losing more than 8% of value from Monday’s open to Friday’s close). For the Jan. 24 session, total options volume reached 6,678 contracts against an open interest reading of 62,206 contracts. This metric represented a 13.76% increase over the trailing one-month average metric.
At the time, call volume outpaced put volume, 3,824 contracts versus 2,854 contracts, yielding a put/call volume ratio of 0.75. While that sounded encouraging, options flow data — which focuses exclusively on big block transactions likely placed by institutional investors — was negative on Friday, with net trade sentiment slipping $187,200 below parity.
Obviously, that doesn’t sound great on the surface. However, options flow was badly negative at the beginning of last week. For instance, the Jan. 21 session saw net trade sentiment fall to more than $3.36 million below parity, overwhelmingly favoring the bears. It’s possible, then, that as these bearish options expire or are closed out early, the bulls could come in, thus decisively sending LNG stock northward.
Conspicuously, on Monday, options flow carried bullish implications, with net trade sentiment reaching $425,300 above the breakeven threshold.
Finally, a compelling catalyst for Cheniere is the statistical realm. Whenever LNG stock loses between 5% and 10% during a one-week period, the second and third subsequent weeks generally enjoy a noticeably high probability of upside. Further, the median positive return during these cycles lands at 5.88% and 9.76%, respectively.
Assuming statistical trends play out as expected, LNG stock could reach $245.49 by Feb. 7 and $254.48 by Feb. 14.
Using Market Intel to Plot an Options Strategy for Cheniere
As stated earlier, the geopolitical framework for Cheniere appears favorable — incredibly so if I’m being blunt. Therefore, the easiest approach with LNG stock is to simply buy the equity in the open market. It has the makings of a buy-and-hold investment, at least for the next four years.
However, aggressive traders may also opt for larger gains over a relatively short time period with multi-leg options strategies. For the next available options chain expiring Feb. 21, ultra-aggressive investors could potentially consider bull call spreads with a short strike price of $250. That’s because statistical trends suggest that LNG could rise a few bucks north of $250 within the next few weeks.
At the moment, there are a handful of call spreads with the short leg strike of $250. The most aggressive and tempting of these is currently the 240/250 spread (buy the $240 call, sell the $250 call). As of Monday’s close, this transaction could be entered into for $140 while carrying a phenomenal payout of $860.
Of course, market weakness on Monday makes the 240/250 call spread an extremely risky idea. A more realistic alternative could be the 230/240 call spread (with the same Feb. 21 expiration date). Though the positional risk is higher at $400 (as opposed to $140), the breakeven price is at a much more forgiving threshold of $234.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.