September 19, 2018 / 7:19 PM / a month ago

Tilray options on fire as pot-stock frenzy grips market

NEW YORK (Reuters) - The meteoric rise this week of Tilray Inc’s (TLRY.O) share price unleashed a rush of speculative activity in options on the medical marijuana company and other marijuana-related names, data showed on Wednesday.

Tilray shares were up 61.3 percent on Wednesday at $249.94, a day after its Chief Executive Brendan Kennedy told Bloomberg the company is interested in the market for consumer products that use ingredients from marijuana.

Wednesday’s gains follow a 23 percent rise in the shares on Tuesday, after the company received U.S. approval to import cannabis from Canada for use in a clinical trial.

The shares are now trading at more than 13 times their July IPO price of $17 per share.

Shares of other marijuana-related stocks also rose, with Cronos Group Inc (CRON.O) up 24.827 percent. Shares of U.S.-listed ETF MG Alternative Harvest ETF (MJ.P) were up 12.1724 percent.

“It’s a situation where there’s a frenzy in the sector, but there is only a handful of things you can trade to try to be involved,” said Henry Schwartz, president at options analytics firm Trade Alert in New York.

By 2 p.m. EDT (1800 GMT), Tilray options volume was at 157,000 contracts, compared with an average daily trading volume of about 40,000 contracts as of last week, according to Trade Alert data.

For the week so far, the combined trading volume for Tilray and Cronos Group options was roughly 680,000 contracts, or about 2.7 percent of overall U.S. single stock options activity, Trade Alert data showed.

“This is nearly the most insane thing I have ever seen in my entire life,” said Schwartz.

Sentiment was mixed, with some traders betting on further gains for the stock while others felt it was ripe for a reversal.

Traders who bought Tilray call options on Tuesday, in the hope the stock would take off, had a big payday on Wednesday.

“It’s pretty remarkable to see calls that were $50 out-of-the-money one day be $20 in-the-money the next day,” said Schwartz.

Tilray is a heavily shorted stock and a lack of supply of shares to sell short may be driving some traders to the options market. About a third of Tilray’s float is sold short, according to financial analytics firm S3 Partners.

“Basically supply is pretty much tapped out,” said Ihor Dusaniwsky, head of research at S3.

Short-sellers who had targeted Tilray were hit with about $310 million in paper losses on the day, according Dusaniwsky.

Reporting by Saqib Iqbal Ahmed; Editing by Bill Berkrot

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