Cannabis stocks have been an industry that has seen consistent unusual option activity. While not every signal has resulted in big moves, many have. The option market was once again drawn to this industry as option volumes and prices surged.
Cannabis Stock Activity
Two stocks that saw both significant price movement and option activity were Tilray Inc (NASDAQ: TLRY) and Canopy Growth Corp (NYSE: CGC). The share price of these companies finished 12.03% and 6.33% higher, respectively.
Both of these companies have maintained a bearish trend since early August and both of these companies have high short interest. As of September 15, 2020, CGC has 51.02% of its float shorted and TLRY has 16.51%.
The large price moves on above average volume on Monday, is pointing to a potential short squeeze and option traders may be looking to play the move.
Cannabis Option Activity
Tilray Inc (NASDAQ: TLRY)
Tilray saw call option volume that was 3.17 times the average with 43% of the volume filling at the ask. Put option activity was a lot higher, the overall option activity was more bullish.
One trade for 7,900 contracts for filled at the ask for $0.30 on the 23 OCT 20 $5.50 call option. The final volume tally finished at 10,194 volume against 250 open interest.
The average price of the fill and the strike price yields a breakeven price of nearly $6. The activity and the strike price are pointing to an expectation of a near-term bullish move.
Looking at the chart, a reasonable Fibonacci retracement level is the 61.8% area near $7.
Canopy Growth Corp (NYSE: CGC)
Canopy didn’t see quite the surge in option activity. Its option volume was about average, but there was some significant trading activity that took place.
Of the 40,404 calls that were traded, 47% of the volume occurred at the ask price. The call option activity that occurred was an example of a sweep. There wasn’t any single fill greater than 510 contracts, but the fills occurred quickly and in succession.
The activity centered on the 16 OCT 20 expiration and spread from the $14 strike out to the $16 strike price. The $14 and the $16 strike prices saw volume that was greater than the open interest.
Looking at the chart and weighing the price paid for the options, a reasonable near-term target for the price is the 38.2% Fibonacci retracement level near $16.
Conclusion
The combination of price movement, stock volume, and option activity from more than one stock in the industry can be a powerful combination. The high short interest can add a lot of fuel to the fire if the price begins to move quickly.