Pot Stock Takes a Breather, Options Bears Pounce

CGC options are attractively priced at the moment, from a volatility perspective

by Patrick Martin

Published on Apr 11, 2019 at 2:37 PM

Weed stocks are lower across the board today, after Scotiabank noted overly optimistic expectations for many cannabis companies, including Tilray (TLRY), Aurora Cannabis (ACB), and Canopy Growth Corp (NYSE:CGC). More specifically, Scotia thinks Canopy Growth's first-quarter earnings estimates are too high. On top of that, MarketWatch noted that cannabis stocks are pulling back today after Attorney General William Barr delivered tepid remarks on the States Act, a bill that would protect companies in states that have legalized weed.

In response, Canopy Growth stock is down 5.1% to trade at $40.09 today, although the drop appears to have found support at the 100-day moving average. Plus, the round $40 area is still roughly double its April 26 low of $20.99. Nevertheless, options bears have started piling on. 

More specifically, 21,000 CGC put options have changed hands today -- double the expected intraday amount and volume pacing in the 94th percentile of its annual range. The weekly 4/26 39-strike put is the most active, with new positions being opened. These options traders could be banking on more struggles from the equity in the coming weeks.

But this runs converse to the options trend seen from the security in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows speculative players have bought to open 19,650 calls in the last 10 sessions, compared to just 7,491 puts. 

Whatever the motive, those wanting to speculate on the pot stock will be pleased to know that its Schaeffer's Volatility Index (SVI) of 44% ranks in the 4th percentile of its annual range. In other words, volatility expectations appear low, suggesting it's an attractive time to buy short-term options premium.

Daily Stock Chart CGC

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