In the October 18 trading session, Aurora Cannabis stock (ACB) closed at $3.68, down 5.40% from the previous session. Moreover, Cronos Group (CRON), Tilray (TLRY), and Canopy Growth (WEED) plunged 6.09%, 4.98%, and 2.65%, respectively.
This massive decline was driven by Green Organic Dutchman’s (TGOD) 14% decrease on the day after an announcement about smaller-than-expected Canadian market growth. This performance lagged behind the S&P 500’s 0.39% decrease on the day. The Dow Jones lost 0.95% while the Nasdaq plunged 0.82%.
In this article, I’d like to discuss Aurora Cannabis’s price target cut as well as recent options trades—and what investors can expect.
Aurora Cannabis price target cut at Cowen Inc.
On Friday, October 18, Aurora Cannabis was also under pressure after Cowen cut its price target for the stock to $8 Canadian from $12 on concerns about vapes. According to data from the Centers for Disease Control and Prevention, vaping-related illness has killed at least 33 people and made 1,479 sick.
These vaping concerns could be a problem for Aurora Cannabis as it plans to launch new vapes and other products to the market as early as December. There’s significant risk of delays for these derivative products’ launches.
Cowen also cut its price target for Canopy Growth from $48 Canadian to $40. The agency has also lowered its Cronos Group target, from $17 Canadian to $12.
How much volatility are options traders expecting this week?
The implied volatility for the ACB options, at a $3.50 strike price that expires on October 25, stands at 78.13%. This number means investors expect an event that could cause significant movement in one direction or the other. By comparison, the SPDR S&P 500 Trust ETF’s (SPY) implied volatility stands at 12.49 for the same expiration date.
Some options traders are also bullish on ACB stock. They expect the stock to rise at least 6% by the end of the week. Moreover, the calls at the $4.00 strike price outweigh the put options about 4:1 with 4,401 open calls to 1,058 open puts. Also, the calls at the $6.00 strike price outweigh the put options about 15 to 1. We can see 2,679 open calls to just 167 open puts.
A buyer of the $6 strike price calls would need the stock to rise to around $6.01 by the expiration date to break even. This imbalance suggests more bullish market sentiment for Aurora Cannabis stock.
Bullish options bets on Aurora Cannabis stock
For Aurora Cannabis stock, the open interest levels for the December 20 $5.00 calls saw bullish buying activity on Friday, October 18. According to barchart.com, the open contracts rose by 2,165 contracts to about 26,426. The open interest represents a total dollar value of about $400,000. A buyer of the calls would need the stock rise to $5.15 by the expiration date, a gain of about 40% from ACB’s current price.
Additionally, the $5.00 puts for the same expiration date have seen increased open interest levels on Friday. According to barchart.com, the open contracts rose by about 2,015 to a total of 20,456. What’s most interesting is that the puts traded on a bid price, which suggests that the contracts were sold. This means Aurora Cannabis stock should stay above the $5.00 price level to earn a profit for the options holder. When considering these two trades, it appears that a trader has made the spread transactions by buying the calls and selling the puts. Generally, that means this transaction was a bullish bet.
To learn more about Aurora Cannabis recent bullish option trades, see my previous article, Aurora Cannabis Stock Is Gearing Up for a Breakout. Looking for more stocks that options traders are actively betting on? Please check out Why Nvidia Stock Could Keep Rising, Intel Stock Could Jump after Earnings, and Alibaba Options Traders Betting on a Bullish Jump.