Why You Should Buy Aurora Cannabis Stock in 2020


Dec. 31 2019, Updated 2:22 p.m. ET

Aurora Cannabis (ACB) stock is currently trading at $2.12 on December 31 at the moment of writing, up 10.99% from the previous trading session. However, its performance has lagged behind the S&P 500’s (SPX) 0.15% decrease today. Meanwhile, the Dow Jones Industrial Average (DJIA) plunged 0.18%, and the tech-focused Nasdaq gained 0.01%.

Notably, Aurora Cannabis stock has fallen over the past month due to vaping-related deaths, demand concerns, and pricing pressure—all of which continue to affect Aurora’s figures. Also, Jefferies has recently downgraded ACB to a “hold” from a “buy” after CFO Cam Battley stepped down from the company. Following this announcement, Aurora shares have fallen more than 10%. 

However, it seems that market sentiment is turning bullish. Options traders have made some bullish transactions during the past few trading sessions. And they’re betting that Aurora Cannabis stock will start to rise by the middle of March. 

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Analysts’ views on Aurora’ CFO departure

On December 24, after the news about ACB’s CFO departure, Jefferies downgraded the company. The Fly reported, “The news is likely to be seen as Cam Battley ‘jumping ship from a company that has struggled to support credibility on the back of a number of recent actions.'”

Following the news, MKM Partners analyst Bill Kirk lowered his price target for Aurora Cannabis stock as well. His price target now comes in at $2, and he’s keeping a “sell” rating for the company.

Options bulls despite challenges for Aurora Cannabis stock

Also, traders from the options market made several huge bullish bets. They’re suggesting that Aurora Cannabis stock will rise by the middle of March. During today’s trading session, there was a purchase of 3,283 January 17 call options with the strike price of $3.00 for $0.20 per contract. Moreover, this transaction brings the total number of open contracts to about 27,811. So this bet has a total dollar value of about $0.5 million, and I’d describe this transaction as a moderate bullish bet.

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At the moment of writing, ACB stock is trading at $2.12. That price means that if the stock can reach the strike price, it would have upside potential of about 50.94% from its current levels. If the options buyer plans to hold the options until the expiration, the price needed to earn a profit would be $3.20—if we’re not taking into account costs and commissions.

Open interest in ACB

Also, the open interest levels for January 17 $2.00 calls increased moderately early today. According to Barchart.com, the open contracts increased by 2,241 contracts to about 14,143. These contracts traded at $0.19 as of Friday, December 27. With that being said, the open interest represents a total dollar value of about $300,000. For the buyer of the $2.00 calls to earn a profit, ACB stock would need to rise to around $2.19. And that level would be a gain of about 3.30% from the current price levels of $2.12.

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Finally, the open interest levels for February 21 $3.00 calls saw an increase during today’s trading session. Again according to Barchart.com, the open contracts surged by 1,502 contracts to about 1,795. For the buyer of the $3.00 calls to break even, Aurora Cannabis stock would need to surge to around $3.13. That level would represent a gain of about 42.92% from today’s Aurora Cannabis stock price. 

A compelling outlook for Aurora Cannabis stock

Putting all this technical analysis together, we can see that the options market sentiment for Aurora Cannabis stock is more bullish than bearish. Moreover, options market trades imply 3.30%–50.94% upside going forward. 

If you’re interested in more of my market research, check out Why Amazon’s Stock Rally Could Continue in 2020, Can Nvidia Investors Expect More Upside in the Stock? and Why Tesla Stock Still Has Big Upside Potential.


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