Options Trading Idea: Energy Transfer LP 1-3 MonthsThree companies caught our eye last week from insider activity, namely:
Transocean (RIG): Offshore drilling upcycle fueling new high-rate contracts. Insiders bought millions of shares, signalling confidence. Strong oil prices and recent debt reduction amplify upside. Short-term catalysts: additional rig contract wins and positive earnings momentum.
Gran Tierra (GTE): Oversold oil producer with 30% YoY output growth. Upcoming catalyst: management’s debt-cut plan (Dec) – could re-rate equity higher. High risk-reward, as leverage magnifies upside if the plan succeeds.
Energy Transfer (ET): A high-yield midstream MLP offering, the insiders are accumulating shares at a cheap valuation. Lower-risk trade with a catalyst of potential distribution growth or project news.
1. What Energy Transfer Actually Does
Energy Transfer LP exemplifies an expansive midstream energy infrastructure, driven by its vast pipeline network and strategic market positioning. It is one of the most extensive midstream energy partnerships in North America, owning and operating more than 130,000 miles of pipelines and associated storage, processing, and export infrastructure across the U.S., moving natural gas, NGLs, crude oil, and refined products from wellhead to end markets.
Broadly, its system is organised into:
NGL & refined products (fractionation, the process where raw liquids are split into higher-value products; storage facilities; export docks)
Crude oil transportation (gathering, which involves collecting oil from different sources; long-haul pipelines for transportation)
Natural gas/midstream (gathering, processing, intrastate and interstate pipelines)
Investments in Sunoco LP & USA Compression (fuel distribution and compression services)
This integrated footprint gives ET exposure to most major U.S. basins, especially the Permian, and to global NGL markets via Gulf Coast export terminals.
2. Earnings Power and Margin Structure
Over the last 12 months, Energy Transfer generated about $79.8 billion in revenue and $4.3 billion in net earnings, implying a net margin of about ~5%. This margin can be attributed to the company’s strategic balance between tariff contracts and commodity exposure. A significant portion of the earnings is stabilised by long-term tariff contracts, which ensure consistent revenue regardless of market fluctuations. On the other hand, spot market deals tied to commodity prices introduce some variability. Gross profit was roughly $16.1 billion against a $63.7 billion cost of revenue. These figures underline the operational leverage and its capacity to manage expenses effectively.
These numbers matter because they frame the debate around ET:
On one hand, scale and diversification support relatively stable cash flows even when commodity prices swing.
On the other hand, it is still a capital-intensive, low-margin business, which means balance-sheet discipline and project selection are crucial for equity holders.
From a growth perspective, analysts expect ~11% annual EPS growth and ~6.4% revenue growth over the next several years, slightly below broader U.S. market earnings growth but ahead of typical pipeline peers on revenue.
3. Balance Sheet: Leverage With Cushion
Midstream investors care as much about leverage as they do about growth. Energy Transfer historically carried a heavy debt load following years of acquisition-driven expansion. Two years ago, the debt-to-EBITDA ratio was around 5.0x. Today, it has improved to approximately 4.3x, showcasing the company’s commitment to reducing leverage and highlighting tangible progress in its financial strategy.
Short-term assets: ~$17.4bn vs short-term liabilities of ~$12.4bn
Long-term assets: ~$111.9bn vs long-term liabilities of ~$69.8bn
This tells us three things:
The asset base is large and tangible – pipelines, plants, and terminals that are hard (and expensive) to replicate.
ET has favourable short-term coverage; current assets comfortably back near-term obligations.
Long-term leverage is meaningful, but assets still exceed liabilities by a wide margin, giving lenders and equity holders a buffer.
Credit-rating agencies and management guidance suggest a target leverage range around 4.0–4.5x debt/EBITDA, with recent trends moving gradually lower as growth capex moderates.
4. Ownership and Insider Alignment
One of the more interesting aspects of Energy Transfer is who owns it.
General public: 64.7%
Institutions: 31%
Individual insiders: 4.27%. That 4.27% is not trivial on a partnership of this size. It reflects substantial holdings by Executive Chairman Kelcy Warren and other insiders, who collectively own more than 140 million units. Warren’s recent purchase of an additional 2 million units in the open market represents a significant personal investment, estimated to be a considerable portion of his personal net worth. This strong alignment of interests with other stakeholders suggests a deep conviction in Energy Transfer's long-term prospects.
Recently, Warren purchased an additional 2 million units in the open market, at a cost of roughly $33 million of personal capital. Historically, Warren’s heavy open-market purchases have often coincided with attractive entry points for long-term investors.
5. Valuation: A Deep Discount on Cash Flows
Where the story becomes compelling is the valuation. The Simply Wall St fair-value gauge shows:
Current price: ~$16.27
Estimated fair value: ~$43.57
Implied 62.7% undervaluation
This fair value is based on a discounted cash flow (DCF) model using consensus forecasts and a cost of equity input. To stress-test these assumptions, consider a scenario in which growth drops by two percentage points or the cost of equity rises by 1%. Even under these more conservative assumptions, the valuation gap remains significant, suggesting ET is at least modestly undervalued.
External sources corroborate this discount:
The units trade at about 8–9x forward distributable cash flow (DCF), translating to an implied earnings yield of approximately 30%. This perspective highlights the potential upside for income-focused investors. In comparison, high-quality utility-like infrastructure often trades at mid-teens multiples, and many midstream peers trade at 10–12x. This gap in peer multiples can be viewed as a margin of safety for investors considering ET.
The distribution yield is ~7–8%, and coverage has been trending toward ~2x on a DCF basis, providing room for modest distribution growth or buybacks.
Relative PE vs Peers
Your PE-comparison chart reinforces the absolute valuation story:
ET: ~13x earnings
Kinder Morgan: ~21.8x
Williams Companies: ~30.6x
Enterprise Products Partners: ~12.3x
MPLX: ~11.3x
Peers on average trade closer to 19x, yet ET sits near the bottom of the range despite comparable or slightly better earnings growth forecasts.
6. Growth Outlook and Capital Allocation
Consensus expects ET’s earnings to grow ~11.2% annually, broadly in line with the midstream industry’s 12.1% but below the broader U.S. market at 16%. Revenue is forecast to grow 6.4% annually, versus the industry’s 3.1%.
In plain language:
Top line grows slightly faster than peers, driven by Permian volumes and NGL exports.
Bottom line growth is slightly slower than the market because ET is more mature and capital-intensive.
Management has signalled a pivot from “growth at all costs” toward balanced capital allocation:
Moderating growth capex, many big projects are either complete or nearing completion.
Using incremental cash to deleverage, targeting lower debt/EBITDA.
Gradually increasing distributions and opportunistically returning capital (e.g., buybacks) when units are undervalued.
7. Translating this into Strategy
Information on the strategies is based on options pricing data from TradingView, assessed on 26 November 2025.
7.1. Best Income Play (High Probability)
SELL CASH-SECURED PUT - Strike: $16 (Dec 26 or Jan 2)
Delta: ~0.24
Premium: ~$0.22–$0.28
Probability of expiring OTM: ~76%
Implied return: 1.3–1.7% for 35–40 days
Annualised return ≈ 14–17%
Why it works
ET is fundamentally undervalued.
Strike is very close to support.
You get paid whether the price goes up or stays flat.
Best market condition
Sideways to slightly bullish.
7.2. Best Directional Trade (High Reward, Low Risk)
BULL CALL SPREAD — Buy $16.5 / Sell $17.5 (Jan 2)
Buy 16.5 call (~$0.34 ask)
Sell 17.5 call (~$0.18 ask)
Net debit ~ $0.16
Payoff
Max profit: $1.00 spread – $0.16 cost = $0.84 (525% return)
Breakeven: $16.66
Max loss: $0.16
Why is this optimal
ET expected to drift into $17–18 zone.
Liquidity is strong at 16.5 and 17.0/17.5 strikes (your images show thick volume).
Small debit, very convex profile.
Excellent theta efficiency.
7.3. Best Intermediate Strategy (Theta + Delta Blend)
DIAGONAL CALL SPREAD — Buy Jan 2 $17 call / Sell Dec 19 $17.5 call
This captures IV skew + slow grind upwards.
Long leg has more time (Jan 2).
Short leg burns faster (theta gain).
You roll the short call forward every week.
Why it’s powerful
ET moves slowly → diagonals exploit drip-up movement.
You earn time decay each week as your long call appreciates.
7.4. High Win-Rate Spread (Good for Small Accounts)
CREDIT PUT SPREAD — Sell $16 / Buy $15.5 (Dec 26)
Collect ~$0.08–0.10 credit
Max loss: $0.40
Win rate: ~74%
Probability of profit: ~70%+
Better risk-adjusted than naked puts for smaller capital.
7.5. Directional “Rerating + Breakout” Strategy
BROKEN-WING BUTTERFLY — 16.5 / 17.5 / 19 (Jan 2)
Cheap entry (~$0.05–0.10)
Max profit if ET closes near $17.50
Higher profit zone extended due to long wing at $19
This captures the slow drift and gives a huge reward if ET spikes.
Note, this is not financial or trading advice; the information represented in this article is for information and research purposes only. All graphic information and options data were sourced from TradingView and Simple Wall Street.
