Call Options Or Put Options On Cheniere Energy (LNG)?

| September 5, 2012 | 0 Comments

LNG OptionsCheniere Energy (LNG) is an energy company.  They’re focused on liquefied natural gas or LNG.  They operate terminals on the gulf coast that take imported LNG off of carriers, re-gasify it, and sell it in the US markets.  They also own and operate a network of natural gas pipelines.

More importantly, Cheniere has received approval to build the first LNG exporting terminal in the US in more than 45 years.

LNG currently trades for $14.65 per share.  The shares are up 362% from the 52-week low of $3.17.  The shares have pulled back 23% from the 52-week high of $18.92.    

Is this an opportunity to buy call options on LNG as it rockets higher?  Or should you buy put options on LNG as it stumbles to get their operation off the ground?

The bulls make a convincing argument…

Cheniere Energy is leading the charge to export American natural gas.  But it’s not without controversy.  Some people don’t think the US should be exporting our domestic energy sources abroad under any circumstances.

As a result, the permitting process for companies who want to export natural gas has come to a standstill.  This is an unfortunate turn of events for natural gas producers who are struggling to stay afloat with natural gas prices near record lows. 

But it’s good news for Cheniere… they’ve already obtained the needed permits to build an LNG exporting facility and begin exporting natural gas to Asia and Europe.  At this point, they’re the only company to receive all of the needed permits to begin exporting LNG. 

In fact, if no other companies receive approval, Cheniere will make a killing on the spread between low domestic natural gas prices and the much higher prices customers in Europe and Asia pay for natural gas. 

What’s more, if the Department of Energy does re-start the permitting process, Cheniere has plans to add another facility into the mix.  Any way you slice it, Cheniere has a great future ahead of them. 

But the bears have a compelling case as well… 

Investing in LNG exporting right now is a dangerous game.  The current President has shown he’s no friend of the domestic energy industry.

He crushed the coal industry with environmental regulations.  He prevented the construction of the Keystone pipeline that would have allowed more Canadian oil into the US.  And now he’s preventing businesses from exporting the glut of natural gas that’s driving down prices and hurting our domestic energy companies.

In fact, the one thing President Obama’s policies have done is create uncertainty.  And investors hate uncertainty! 

Here’s the bottom line… 

The Department of Energy needs to make a decision.  They’re either going to allow companies to export LNG or they’re not.  But until they do, there’s too much uncertainty for any stock in this industry to go anywhere but down.   

If you think the bulls are right, take a look at buying the LNG January 2013 $16.00 Call for around $1.50. 

If you think the bears are right, take a look at buying the LNG January 2013 $13 Put for around $1.35.

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Good Investing,

Corey Williams

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Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.