Options Traders Blast Weed Stocks as Sector Spirals

Options volume is hot on HEXO, CRON, and TLRY

by Karee Venema

Published on Oct 10, 2019 at 1:59 PM
Updated on Oct 10, 2019 at 2:52 PM

The U.S. stock market is climbing today on positive U.S.-China trade updates. Not all of the day's action is to the upside though, with the weed sector taking a hit on Hexo Corp (NYSE:HEXO) headwinds, and pot stocks Cronos Group Inc (NASDAQ:CRON) and Tilray Inc (NASDAQ:TLRY) taking notable dives. Here's a closer look at where the shares of HEXO, CRON, and TLRY are trading at today.

Hexo Hits New Low After Revenue Warning, Withdrawn Guidance

Canada-based Hexo warned fourth-quarter revenue will likely be less than anticipated, and withdrew its 2020 financial guidance, saying regulatory delays are holding up retail store rollouts. In reaction, HEXO stock is down 21.5% at $2.89, earlier tagging an 18-month low of $2.72.

HEXO shares are now down more than 65% from their April 29 record high of $8.40, but short-term options traders are calling a bottom. Amid heavier-than-usual volume today, the November 3 call is active, and it looks like new positions are being purchased here. If this is the case, call buyers expect Hexo stock to bounce back above $3 over the next five weeks.

Cronos Heads Toward Fifth Straight Weekly Loss

Cronos stock is feeling the heat from Hexo, off 5.6% at $8.09, sinking to its lowest level since late November. The shares have been sliding quick since their early February peak above $25, and are now pacing toward their fifth straight weekly loss.

Speculative players are targeting even more downside for the weed stock through week's end. Put volume is running at two times the average intraday pace today, and buy-to-open activity is detected at the weekly 10/11 7.50 and 8 strikes. By initiating the long puts, traders will profit the further below the strikes CRON stock sinks through expiration at the close tomorrow, Oct. 11.

October Puts Pop as Tilray Sinks

Tilray hit a 14-month low of $21 earlier, last seen down 11.1% at $21.22. The cannabis stock has now shed 84.5% year-over-year, so it's no surprise to see so much skepticism priced into the shares. Specifically, 80% of covering analysts maintain a "hold" or "strong sell" rating on TLRY, while more than 36% of its float is controlled by short sellers.

Shorts are sidelined today with Tilray on the short-sale restricted list, which may explain why options volume is crossing at four times what's typically seen at this point. Bears may be buying to open the October 20 put, betting on TLRY stock breaching the round-number level by front-month expiration at the close next Friday, Oct. 18.


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