Weed Stock Attracting Option Bulls After Big Upgrade

BofA-Merrill Lynch flipped to "buy" on Cronos Group stock

Jun 5, 2019 at 1:59 PM
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Shares of marijuana concern Cronos Group Inc (NASDAQ:CRON) are higher today, after BofA-Merrill Lynch reversed its position on the stock, upgrading CRON to "buy" from "underperform." The brokerage firm also hiked its price target to $27 from $17, waxing optimistic on the company's partnership with Altria (MO) and its growth potential in the U.S. Against this backdrop, CRON call options are flying off the shelves at a rapid-fire pace, with speculators rolling the dice on even more upside.

Cronos Group stock was last seen 9.2% higher at $15.75. While the equity has backpedaled since its early February high of $25.10, it's now within one standard deviation of its 10-month moving average. Since its inception, there have been just two other times when CRON was above this moving average more than 80% of the time over the past 20 months before pulling back. After those dips, the security was higher three months later both times, averaging a gain of nearly 50%, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

CRON stock chart june 5

At last check, roughly 49,000 Cronos calls have changed hands -- five times the average intraday pace, and about triple the number of puts exchanged. Most active are the weekly 6/7 16- and 16.50-strike calls, which are seeing new initiations. Buyers of the calls expect CRON shares to extend their journey higher and topple the strikes before Friday's close, when the weekly options expire.

Today's appetite for bullish bets runs counter to the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where the equity has racked up a 10-day put/call volume ratio of 0.70. While this ratio indicates that long calls have outnumbered puts on an absolute basis, it registers in the 77th percentile of its annual range, pointing to a healthier-than-usual appetite for bearish bets during the past two weeks.

 

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