Cronos Calls Active on Canadian Expansion

One trader may have opened a September call spread

by Emma Duncan

Published on Jul 11, 2019 at 3:27 PM

Cannabis stock Cronos Group Inc (NASDAQ:CRON) is up 2% at $15.60, moving higher after the company said it will buy an 84,000-square-foot fermentation and manufacturing facility in Winnipeg, Canada. Weighing in on the deal, analysts at Jefferies think the purchase should result in commercial-scale cannabinoid production and improved financial performance for Cronos Group. Meanwhile, CRON calls are active today, and one options trader may have initiated a bullish spread.

Despite a pullback from record highs earlier this year, the security remains 118% higher year-over-year, and has stabilized in recent weeks atop support from the 200-day moving average. Year-to-date, CRON is up more than 46%.

Daily CRON with 200MANew

This afternoon, CRON's call volume is pacing for the 88th percentile of its annual range. Currently, more than 34,000 calls have changed hands -- twice the average intraday amount, and more than three times the number of puts traded.

Most active are the September 15 and 16 calls, where a bull call spread may have been initiated. More specifically, it looks like a trader bought to open 4,952 September 15 calls for $1.57 apiece, and then partially funded the position by selling to open an equal amount of September 16 calls for $1.07 each. As such, the trade was opened for a net debit of $0.50 per spread, or $247,600 total (number of spreads x 100 shares per contract x debit), which represents the maximum risk.

The trader will profit if CRON remains above $15.50 (bought call strike + debit) in the options' lifetime. However, the maximum reward is capped at $0.50 per spread (difference between strikes - debit), no matter how high the stock may jump above $16. That's due to the sold 16-strike calls.

Had the trader simply bought the 15-strike calls, they would've paid over three times more to enter the trade ($1.57 apiece), and wouldn't profit until CRON topped $16.57 (strike + premium paid). However, their profit potential would be theoretically unlimited to the upside, increasing the higher the shares rallied north of breakeven before the options expire in September.

Outside of the options pits, shorts have been targeting the weed stock, with short interest on CRON up 75% since March alone. With 32.92 million shares sold short, it would take shorts over a week to buy back their bearish bets, at the security's average pace of trading, meaning there's ample sideline cash available to fuel upside for the shares. Likewise, Cronos stock also looks ripe for upgrades; 80% of covering analysts have issued tepid “hold” or worse ratings on the equity

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