Canopy Growth Stock Surge Draws New Options Bulls

Piper Jaffrey initiated bullish coverage on weed stocks

Jan 9, 2019 at 2:32 PM
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The shares of Canopy Growth Corp (NYSE:CGC) have shot up 12.5% to trade at $33.35, as a bullish brokerage note offsets a sharp sell-off for CGC stakeholder Constellation Brands (STZ). Options traders are reacting, too, targeting more short-term gains for the weed stock.

Taking a quick look at that analyst note, Piper Jaffray initiated coverage on the cannabis sector, saying "long-term growth opportunities are significant," and "the pace of further legalization appears to be accelerating." On CGC stock, specifically, the brokerage firm set an "outperform" rating and $40 price target -- a 35% premium to last night's close.

Meanwhile, in the options pits, roughly 62,000 calls and 16,000 puts have changed hands -- four times what's typically seen at this point, and volume pacing in the 100th annual percentile. New positions are possibly being purchased at the weekly 1/11 30-, 32-, and 32.50-strike calls, while buy-to-open activity is also possible at the further-dated January 2019 35-strike and February 35 calls.

Today's call-skewed session echoes the broader trend seen on Canopy Growth. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 3.62 calls for each put over the last 10 days.

Considering how heavily shorted the weed stock is, some of this activity is likely due to shorts initiating an options hedge. Short interest shot up 11.2% in the two most recent reporting periods to 23.39 million shares -- representing 47.5% of CGC's float, or 3.4 times the average daily pace of trading.

Looking at the charts, CGC skimmed a familiar floor near $26 in late December, a region that cushioned pullbacks in July and August. The shares have since added 30.8%, and have now muscled north of their 50-day and 200-day moving averages, which recently formed a death cross.

cgc stock daily chart jan 9

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