I opened a strangle on Cheniere Energy this morning.

music selection:  “Feed My Frankenstein” — Alice Cooper

weigh-in: 213.0 n/c

Cheniere Energy is in the process of building out North America’s largest Liquified Natural Gas export terminal.  Construction on the first train in Sabine Pass is substantially complete and they announced over the weekend that the first tanker has docked at their facility to begin loading.  The company is currently bleeding an enormous amount of free cash flow as it builds out infrastructure but with the completion of train one, some revenue will finally begin coming in.

This is an arbitrage play.  North American gas is cheap compared to the rest of the world and the North American price is projected to be depressed for decades.  The company already has long term agreements for up to 90% of the capacity of train one and train two at the Sabine Pass facility and is actively marketing the capacity for the additional four trains under construction.  It should be noted that an additional facility is under construction in Corpus Christi, TX.  The contracts include a fixed payment that will be worth a couple billion dollars a year when all trains are running plus a markup on delivered fuel.  I expect this to be a long term dividend growth play.  Carl Icahn and Seth Klarman have recently become large shareholders so I am in good company here.

I purchased 200 shares this morning at 30.60.  I also sold covered calls and written puts for income.  The near the money put LNG160318P00030000 fetched 1.80 a contract and will be in force 26 days.  It yields 84.23% annualized.  I’m neutral as to whether I get assigned more shares here as the income potential to continue writing puts is immense.  I also went 30% out of the  money for covered calls and sold LNG160318C00040000 for 16 cents a contract.  That trade will also be in force 26 days and yields 5.62% annually.  It is unlikely the shares will be called but I will be well compensated if they do with 30+% capital gains in 26 days.

Devour your prey raptors!

Strangle Cheniere Energy, Inc. (LNG)

Never miss another opportunity to devour prey!

2 thoughts on “Strangle Cheniere Energy, Inc. (LNG)

  • March 26, 2016 at 1:22 am
    Permalink

    Great learning experience reading your blog, just started income option writing myself. I’m 2 for 2 with put writing puts in a similar liquid natural gas stock; EPD. Great yield, fundamentals and growth prospects for ’16. Been writing mostly 1 week options, just don’t have the confidence yet writing longer expirations as you do. I like your 12% annual target; I seem to have inadvertantly been doing the same but just did not have a finite target.

    How do you go about researching income writing stock candidates?? I only feel comfortable with the 6 or 7 stocks that I know exceptionally well and keep utilizing them over and over. Any tips or suggestions?? Thank you.

    Reply
    • March 26, 2016 at 1:41 am
      Permalink

      Sawman,

      Thanks for reading. I’d recommend against writing puts on anything you don’t feel comfortable with. Sooner or later, you will end up owning the underlying. Don’t let that eventuality become “downside”. Write what you actually want to own. Twelve percent target is, I think, a good trade off. You handily beat the long term average of buy/hold and pick up some downside protection. If it isn’t paying, you are better off just owning the underlying immediately.

      Reply

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