Cannabis stocks exploded higher at the start of the year and have now given up their gains. Tilray (TLRY), for instance, started the year under $10, spiked to $60, and has now lost most of its value to trade at $15.
One trader sees a rebound ahead. Over 2,970 contracts traded on the August $30 calls, a 21-fold rise in volume from the prior open interest of 141.
The buyer paid about $0.58 for the options, which will require shares to about double for them to move in-the-money.
It’s not out of the realm of possibility. The past few weeks have seen a surge in state looking to legalize medical or recreational cannabis. And a law that could make it easier to cannabis companies to operate in the US has been introduced in Congress.
Action to take: This is an inexpensive option with a lot of potential upside and no downside. In recent sessions, shares of Tilray have also touched on their 200-day moving average without moving meaningfully lower.
So even on a bounce higher in the next few weeks, traders could be looking at triple-digit moves here. A move to $30 is one doubling for the company, a far cry from its peak near $60.
Disclosure: The author of this article has no positions in the stock mentioned here, and does not intend to make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.