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Bullish on GW Pharmaceuticals? Take a Look at December Naked Puts

October 3, 2017

 

Yesterday, options traders in shares of GW Pharmaceuticals Plc (NASDAQ:GWPH) saw new options become available. Many saw shares of the cannabinoid-based pharmaceuticals company drop the other day when Zogenix, Inc. (NASDAQ:ZGNX) announced positive clinical trial results for a competitor to GWPH's drug to treat Dravet syndrome. While shares of GWPH were hit hard by this news, many traders and investors are using this as an opportunity to buy shares of GWPH on the cheap.

 

For those who are still bullish on GWPH and are interested at these price levels, check out the put options for December 15th expiration as an alternative to paying $103.49/share right now.

The reason we're looking so far out into the future is because these contracts have a higher time value, and thus larger premiums for the seller. With an expiration in mid-December, these options have over 70 days until expiration. 

 

As you'll see in the options ladder above, the put contracts at the $95.00 strike price currently are bid at $4.80. If an investor initiated a sell to open trade on that put contract, they would hypothetically be committing to purchase the stock at $95.00 per share, and would also get to collect the premium of $480 per contract.

 

Overall, this would put the cost basis of each share of GWPH at $90.20 not including an investor's broker commissions. Since these contracts are out of the money, there is a higher chance of the put contract expiring completely wortheless, meaning the investor who sold the put keeps all of the premium. If shares of GWPH go below the $95 strike at expiry, your break-even per share would be just $90.20 per share! 

 

This was just one of the hypothetical options trades worth a second look. Many cannabis investors forget about options, and they can offer another way of looking at the markets. Besides GWPH, there's also options in 22nd Century Group, Inc. (NYSE:XXII) and more!

 

Fair warning, options involve substantial risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of the ODD are available from your broker or from The Options Clearing Corporation.

 

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D/M/O

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