Bullish Options Premium Remains Tame During Canopy Growth Surge

CGC stock is headed toward its best week since mid-May

Aug 17, 2018 at 2:18 PM
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The shares of Canopy Growth Corp (NYSE:CGC) are pacing toward their best week since mid-May -- up 17.6% so far. Today, CGC stock has added 6.7% to trade at $33, after William Blair added the name to its focus list, saying a $4 billion investment from Constellation Brands (STZ) has the Canada-based firm "long‐term market leader in both the upcoming Canadian recreational cannabis market and the rapidly expanding international medical market."

The positive price action has sparked accelerated call volume in CGC's options pits, with nearly 15,000 contracts traded already today -- three times what's typically seen at this point, and nearly quadruple the number of puts traded. Most active is the January 2019 35-strike call, where it looks like new positions are potentially being purchased. If this is the case, the goal is for the marijuana stock to break out above $35 by January options expiration.

Canopy Growth calls have already been in heavy rotation in recent weeks, with speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) buying to open 3.70 calls for every put over the last two weeks. Considering CGC stock is heavily shorted -- these bearish bets account for 10.5% of the equity's float -- some of this activity could be the result of hedging.

Whatever the reason, short-term CGC calls are currently pricing in lower volatility expectations than their put counterparts -- a boon to those potentially buying premium. The security's 30-day implied volatility skew of 17.2% ranks in the 97th percentile of its annual range.

Looking closer at the charts, Canopy Growth stock has surged more than 379% over the last 12 months, and topped out at a record high of $36.55 as recently as June 22. The security's pullback from here was quickly contained near $25 -- home to its pre-bull gap highs from May -- while the $33-$35 region has served as familiar resistance in 2018.

cgc stock daily chart aug 17


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