2 Pot Stocks Buzzing on M&A Update

The options pits are lighting up for the two cannabis producers

Assistant Editor
Dec 16, 2020 at 3:36 PM
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The shares of Aphria Inc (NASDAQ:APHA) and Tilray Inc (NASDAQ:TLRY) are both significantly higher, after the two Canadian cannabis companies announced an all-stock merger to become the world's largest cannabis producer. Aphria shareholders will walk away with 62% of the combined company, and the company will pay a 23% premium over Tilray's Tuesday closing price of $7.87. Below, we'll take a look at the options activity surrounding both equities and see how each stock has been performing on the charts of late.

Starting with Aphria, the stock was last seen trading up 3.6% at $8.41, climbing back toward its Dec. 4 annual high of $8.88. In the last three months, APHA has managed a 76.7% rise, with support from its 20-day moving average -- a trendline that also caught a slight pullback during yesterday's session.

APHA Chart December 16

As a result, roughly 64,000 calls and 7,044 puts have changed hands, double what's typically seen at this point. The monthly December 9 call is most active, followed by the 12/24 9-strike call, with new positions being opened at both.

Meanwhile, Aphria stock's Schaeffer's Volatility Index (SVI) of 106% sits in the 34th percentile of its annual range. This means option traders are pricing in relatively low volatility expectations at the moment -- a boon for premium buyers.

Now on to Tilray stock, which was last seen up  23.5% to trade at $9.72. This pop put TLRY back north of long-time support at its 30-day moving average after a brief stint below the trendline. And while the equity is down 46.5% year-over-year, it boasts a 96.8% quarter-to-date lead.

TLRY Chart December 16

In response, around 309,000 calls and 76,000 puts have crossed the tape -- three times the intraday average, with volume pacing in the 99th percentile of its annual range. The December 10 call is most active, followed by the 9.50 call from the same series, with new positions being opened at both. This means plenty of traders are betting on more upside for the stock by the contract's expiration at the end of this week.

Lastly, though short interest has begun to unwind, there's still a healthy amount of pent-up pessimism, which could act as a tailwind moving forward. The 25.24 million shares sold short account for a staggering 31.3% of the stock's available float, and would take a day and a half to cover at the security's average pace of trading.  

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