Large Option Traders Are Selling The Aurora Cannabis Earnings Pop

Aurora Cannabis Inc ACB shares traded higher by 8 percent this week after the company reported a mixed first-quarter earnings report Tuesday evening. Options traders made some big moves following Aurora’s earnings, and the largest trades suggest the Aurora rally could soon run out of steam.

The Trades

Throughout the week, Benzinga Pro subscribers received a number of options alerts related to Aurora Cannabis.

On Wednesday morning around 10:30 a.m., a trader sold 2,000 Aurora call options at a $9 strike price that expire on Dec. 20. The calls were sold at the bid price of $1.051 and represent a $315,500 bearish on Aurora shares.

The next unusually large trade came Wednesday shortly after 2:00 p.m. The trader first sold 1,261 Aurora put options at a $9 strike price that expire on June 21 at the bid price of 95 cents. A few minutes later, likely the same trader sold another 1,000 Aurora put options at a $9 strike price that expire on June 21 at the bid price of 90.1 cents. The total put sales represented a $209,895 bullish bet on Aurora.

On Thursday afternoon, another large Aurora option trade was executed. The trader sold 1,092 Aurora call options at a $7 strike price that expire on Jan. 15, 2021. The calls were sold at the bid price of $2.601 and represent a $284,029 bearish bet on Aurora’s longer-term outlook.

On Friday morning, two more Aurora option sales were processed. The trader first sold 1,000 Aurora call options at a $8 strike price that expire on July 19. The calls were sold at the bid price of $1.051. Then, the trader came back and sold 1,937 Aurora call options at a $8 strike price that expire on January 17, 2020. The calls were sold at the bid price of $1.601. Together, the two trades represented a $415,213 bearish bet against Aurora.

Why It’s Important

Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company. Even traders that stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.

Given Aurora’s earnings report sent the stock trading higher, the mostly bearish options trading may simply be a “sell-the-news” event in which traders are taking profits on the red-hot stock.

Separately, Bank of America analysts said Aurora may be “missing the boat” in the cannabis-infused beverage business, and traders may also see better cannabis opportunities elsewhere. The firm reiterated a Buy rating and $11 price target on the stock.

Unfortunately, because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100 percent certain whether an option trade is a standalone purchase or a hedge against a stock position. Given the buys on this week individually represented less than $500,000 bets, they are unlikely to be hedges in this case.

Aurora Cannabis's stock traded around $8.80 per share at time of publication.

Related Links:

Analyst: Aurora Cannabis May Be 'Missing The Boat' In Beverages

Options Trader Makes $239K Bearish Bet On Aurora Cannabis Ahead Of Earnings