One of the stocks we have been wanting to buy for our Cannabis Portfolio is Cronos. On our radio show / podcast, this was our options trade of the week. The following is our strategy in adding Cronos to our portfolio using options and a technical review. Also for more stock trades, our new Team Trader Dave Connelly’s aggressive stock trading room is open, and for the next month or so is free to all members. Check out his current trades as he has a setup for another cannabis stock Aurora (ACB).
Sell the 20.0 March 22nd Put @ 1.25 – The required equity for this trade is $2000 and we are wanting to be assigned the stock.
As with all speculative stocks, there is the risk of losing all your capital, and these types of investment instruments should only be done using discretionary risk capital you are willing and able to lose in its entirety. The capital risk with this trade is $2000 + fees assuming Cronos goes to zero. The risk is no different than buying 100 shares of the stock. For more on our options strategy you can click here.
Also remember NFP is Friday and this can have an adverse effect on the market.
Cronos has been consolidating over the past month, and though we were looking for a retest of the 19.0 area it fell just short of our target. This is the level we want to be in but the chart is setting up for a long trigger and this may be an initial wave three of a broader move. Yet wave 3’s are often misleading and we can also be in the final leg of a correction. With the strength of the chart we are looking at the 20.0 area initially.
Keep in mind this could be a triangle correction and the potential for an exaggerated “e” leg is there, which could result in a move to 18.0. The 20.20 level is a key technical level which if taken out brings into play the 15.0-18.0 area. This level is also a key reversal level and one if buying the stock outright would be a good area for an initial partial position.
Because the market is susceptible to a pullback we want to keep some cash on the side in the event Cronos follows the S&P if and when it pulls back. However the cannabis stocks do not have to correlate with the market as a whole as it is a new area of potential growth.
If the market pulls back to the 18-19 area we will look to sell another put on a reversal signal. We would become more aggressive and consider a 3rd position in the 15.0-16.0 area if the opportunity arises.
There is still room for Cronos to pullback some here, but the chart is showing some bullish qualities. If the 22.25 is taken out our initial target is in the 24.85-26.50 area. We can always look to add on a pullback from this level as well.
The key here is stepping in slowly and not becoming to big to fast as these markets are susceptible to news and sentiment changes quickly. Using our options strategy we are looking to get paid or lower our share cost in acquiring the stock. If the option expires worthless we will look to sell another, and we can use the premiums collected to buy the stock outright.
This is not a get rich quick strategy, it is a longer term strategy, and like the CGC and AMD trades, there is always the potential for taking some pain. Be aware of the risks of trading options especially shorting them and if you are shorting puts (selling puts) you must be capable of being assigned 100 shares of the stock at the strike price. If you are not capable of doing this and still want some exposure, buy a few shares here, and set a bar to buy lower in the future
As with all speculative equities, there is the risk of losing all your capital, and these types of investment instruments should only be done using discretionary risk capital you are willing and able to lose in its entirety.