2 Pot Stocks Popping Ahead of Canada Legalization

CGC and CRON shares are attracting short-term option bulls

Andrea Kramer
Oct 15, 2018 at 2:30 PM
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Several cannabis-related stocks are higher today, ahead of the Oct. 17 legalization of recreational marijuana in Canada. In addition, Canopy Growth Corp (NYSE:CGC) stock is flying high -- and attracting option bulls -- on M&A news, and Cronos Group Inc (NASDAQ:CRON) shares are higher after inking a notable partnership.

CGC Option Bulls Emerging Ahead of Big Day in Canada

CGC stock was last seen 9.4% higher at $54.52, on plans to acquire hemp company Ebbu -- which Canopy Growth says could "vastly reduce the cost of CBD production." The shares have added 129.9% in 2018, mostly due to a banner month of August, during which CGC rocketed nearly 74% higher. After notching an all-time high of $56.59 on Sept. 5, the security caught its breath atop support in the $45-$48 region, but today is on pace for its highest close ever.

CGC stock chart oct 15

Options traders are flocking to Canopy Growth calls at twice the average intraday pace, with about 51,000 contracts traded so far -- set for an annual high. That's nearly four times the number of CGC puts exchanged today. Digging deeper, it appears traders are hoping for higher highs before October options expire on Friday, buying to open the October 50 and 55 calls.

That appetite for long calls over puts merely echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past two weeks. The stock's 10-day call/put volume ratio of 2.28 indicates that traders have bought to open more than two CGC calls for every put in the past two weeks.

Further, the stock's 30-day implied volatility skew of negative 6.9% is in just the third percentile of its annual range. Simply put, this indicates that CGC's near-term puts have rarely been cheaper than calls during the past year.

Cronos Stock Battles Back on Technion Partnership

Cronos Group stock was last seen 15% higher to trade at $11.33, after the company said it's partnering with Technion to "explore the use of cannabinoids and their role in regulating skin health and skin disorders." CRON stock has struggled since touching a record high of $15.30 in mid-September, but found support in the $9-$10 region, and today is on pace to top its 10-day moving average for the first time since Sept. 24. Even with the recent pullback -- not to mention a bearish position from Citron Research -- it's been a banner year for CRON shares, which have more than quadrupled in the past 52 weeks.

CRON stock chart oct 15

CRON calls are trading at a slightly accelerated clip today, with 33,000 exchanged so far, compared to roughly 6,613 puts. It appears short-term bulls are buying to open the soon-to-expire October 10.50 and 11 calls, which are the most popular options so far today.

As with CGC, Cronos Group is no stranger to option bulls. The equity's 10-day ISE/CBOE/PHLX call/put volume ratio sits at a healthy 2.63, pointing to nearly three calls purchased to open for every put in the past 10 sessions. Plus, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.47 indicates that open calls more than double puts among options slated to expire in the next three months.


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