Unusual Options Activity: Tilray (TLRY)

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  • Cannabis firm Tilray (TLRY) has seen shares soar since the election, following a new slew of states that legalized recreational use of the drug. However, the rally has proved short-lived, and is already coming back down. One trader sees a further decline.

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  • That’s based on the March 2021 $4 put on shares. 10,000 contracts traded hands on these puts, against a prior open interest of 330, for a 33-fold rise in volume. The option buyer paid $0.59 on average.

    The option expires in 126 days. Typically, cannabis stocks have rallied following an election where many states have legalized the drug, only to see a drop in the following year.

    Add in a sector with a large number of players that are overproducing, and it’s easy to see why the bearish trade makes sense, and why shares have already given up most of their post-election gains. The sector will likely be volatile an profitability difficult until it consolidates.

    Action to take: The March $4 put is great in terms of timing and its low price. Shares would need to fall nearly 40 percent to move in-the-money on this specific trade, but for those looking for a decline in January and February, this option could easily deliver high-double-digit gains, or even end up becoming a triple-digit winner if a decline is speedy enough.

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