Shares of pot stock Canopy Growth Corp (CGC) are down 84 percent in the past year. One trader is betting that steady downtrend will continue.
That’s based on the October $10 puts. With 134 days until expiration, 10,002 contracts traded compared to a prior open interest of 342, for a 29-fold rise in volume on the trade. The buyer of the puts paid $6.23 to make the downside bet.
Shares last traded at about $4.25, so the option is priced with no real premium to it at this time. A further decline should lead to a move higher for the option. The stock has traded as high as $26.80 in the past year.
In addition to the decline in shares, revenue is down 25 percent in the last year and the company is burning through its cash at a considerable rate.
Action to take: Shares are likely to continue their downtrend, as the company is losing money even as the legal pot market is growing rapidly in the US. Investors should simply stay away from shares for the foreseeable future.
For traders, the October put options are well-positioned in terms of time left on the trade to play out. However, the most the option can be worth is $10, and that’s if the stock goes to zero. So upside will be limited. But for downside protection in this market, traders can likely nab mid-double-digit profits on a continued slide in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.