After a hot start to the year, Aurora Cannabis Inc (NYSE: ACB) stock has cooled in the past month, trading mostly sideways ahead of first-quarter earnings expected on May 11 (although this date hasn't been confirmed). A look at the options market reveals traders are taking some large positions in Aurora ahead of that earnings report.
The Bet
Benzinga Pro subscribers received an options alert on Tuesday morning after a trader bought 2,664 Aurora put options at a $9 strike price that expire on June 21. The puts were purchased at the ask price of 90 cents and represent a $239,000 bearish bet on Aurora stock. The break-even price for the trade is $8.10, implying more than 11 percent downside from current levels.
Many stock traders watch the options market daily for unusual trading activity. Even if they aren’t trading options themselves, they want to know what options traders are thinking.
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Why It's Important
Options traders are typically seen as more sophisticated and advanced than the average stock trader. The larger the order, the more traders pay attention to what could be an institution or an so-called “whale†that could have unique insight into a stock.
The bearish bet on Aurora could mean an options trader is anticipating earnings will disappoint the market and/or traders will sell the news and cash in their 83 percent year-to-date gains. Given that the strike price isn't far from the current price, the trader may also be planning to exit the position prior to the earnings report.
Unfortunately, stock traders often use the options market to hedge their larger stock holdings. In that respect, it can sometimes be difficult to determine if a large option trade represents a trader’s true sentiment toward the underlying stock. In the case of Aurora Cannabis, the $239,000 trade is relatively small and is therefore unlikely to be a hedge.
At time of publication, Aurora Cannabis traded around $9.14 per share.
Related Links:
Signs An Aurora Cannabis Technical Breakout May Be Imminent
How To Read And Trade An Options Alert
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