We believe Canopy Growth Corporation is going to become the “Microsoft of Cannabis,” and traders want to know how to get in on the action from Canopy Growth stock options.
It’s going to have its hands in everything, and when you think of cannabis like you think of technology, you’re going to think of Canopy Growth.
If you’re a “Buy and Hold” investor, you could use a dollar-cost averaging strategy each month to acquire shares of CGC stock. That means that no matter what the stock price is, you buy the same amount of shares each week, month, or quarter.
But there’s also a way to profit from the Canopy Growth, no matter if the price goes up or down.
It’s called options.
With options, you can look at short-term events and make quick profits.
For example, with Canopy Growth stock options, if you think the company is going to have a bad quarter, you can bet that the stock price will go down after the company reports earnings.
If you think Canopy is going to report great earnings, you can make a bet that the stock price is going to go up.
For example, one investor bought over $30,000 worth of Canopy Growth Corp. (NYSE: CGC) options, betting that the stock price is going to go up very quickly after the company announces earnings on November 15, 2019.
Buying what are called Calls and Puts is a fairly simple once you are approved for options trading, and one of the easiest platforms to use is Robinhood.
Today, we’re going to show you exactly how to buy Canopy Growth stock options on Robinhood.
But first, we wanted to review the risks involved with cannabis options investing before you make your first trade.
Risks with Buying Canopy Growth Stock Options
If you just buy Canopy Growth stock, unless the company goes bankrupt and becomes worthless, you’re going to be able to retain some value from your original investment.
For example, if the CGC stock price drops from $40 to $35, you still can sell it and receive some of your original investment bank.
Options work a little differently.
If it doesn’t look like your investment is going to work out or if it is working out, you have the opportunity to sell it. But there is a chance that your options expire worthless and you lose all of your original investment in a short period of time.
That’s the biggest risk with options.
You have to be comfortable that your investment could be completely wiped out.
You should never invest what you can’t afford to lose, and that’s especially true for options.
However, the profit opportunity is huge.
Canopy Growth Stock Options 101
Going back to the big bet that a trade made for Canopy Growth, we will use that example for the $25 CGC November 15 Call. You can buy options for weeks, months, or even years ahead in some cases, but we are just going to stick with this short-term play as an example.
It is by no means a recommendation. It is just an example to help you understand how options work.
On November 1, the Canopy Growth stock price traded for $19.71.
If we look at the table on OptionsProfitCalculator.com at the Call section, the “Bid” for the November 15 CGC $25 “Strike” is $0.10. The “Ask” is $0.11.
This might sound a little complicated at first, so we can break this down.
The Bid is what someone is willing to pay for the option but not the obligation to buy CGC stock for $25. The Ask is what someone is willing to sell that option for to another trader.
This trade we are looking at is a Call because we are speculating that the stock price will go up. If we believe it will go down, we would buy a Put.
So even though the Canopy Growth stock price is under $20 now, if it shoots up to $27 on November 15, your option will be more valuable because traders would be interested in buying CGC for $25 instead of paying $27.
Let’s say that we want to go ahead and get this trade through, so we are willing to pay the $0.11 Ask price instead of waiting around to see if someone will sell it to us for $0.10.
Each option contract that we place is going to be for 100 shares.
Buying one option at $0.11 brings our total cost to $11.
You can see from the chart below that how far the stock price climbs and how quickly it can climb are important factors in making a profit from options. For example, if the CGC stock price shoots up to $23 by November 5, you will have a 427% profit.
Not bad for just clicking a few buttons!
But if you think Canopy Growth will have a blockbuster earnings report on November 15 and that the stock price could reach $27 per share, you may want to wait.
If the CGC stock price does reach $27 per share on November 15, your original investment would now be 1,736% more valuable.
Of course, that’s the trickiest part of trading options.
A trader who made 427% might kick themselves for not holding out longer and netting that 1,736% return.
However, traders often have short memories. They might forget about all the times they were up 400% on a trade but didn’t cash out because they wanted to try and squeeze an even bigger return out of their initial investment.
Then, instead of walking away with a massive triple-digit gain, they wait too long and their Call or Put starts to decline in value.
From that 400% gain, the trader may end up watching that option expire worthless and not only not make a profit, but end up losing all of their original investment.
So before buying cannabis stock options, make sure you have a plan set up of when you want to cash out!
Of course, you also don’t have to buy $25 CGC Calls if you think the price will go up. As an example, you could buy $22 Calls if you think the price is going to go up bit want to be more conservative.
However, the Ask for those $22 Calls is $0.39. Remember that the Ask for the $25 Calls was $11 ($0.11 X100). The cost for those $22 Calls is $39 ($0.39 X 100).
You are paying for less risk.
The profit potential isn’t as large but, again, you are paying up for less risk. Climbing from $19 to $22 in a short period of time could be seen as more feasible then the stock price climbing from $19 to $25.
And the perception of where the stock is headed and what traders think is what makes people willing to buy or sell a stock for a certain price.
This isn’t by any means an ultimate guide on trading options, but hopefully it took away some of the mystery behind it and will give you a good starting point. We encourage you to continue to learn about options trading through internet resources, books, and videos.
Now, let’s take a look at setting up your first Canopy Growth stock options trade on Robinhood.
How to Trade Canopy Growth Stock Options on Robinhood
To learn more about options trading on Robinhood, the company has a helpful page for you to check out right here.
And as a reminder, Robinhood will also need to approve you for options trading.
Once you’re approved, it’s real easy to make an options trade on Canopy Growth.
You can start by typing in CGC or Canopy Growth on the search page.
Click on Trade Options.
So after selecting Trade Options, we looked for the November 15 options on CGC.
When you select the $25 November 15 Call, it will then take you to this screen. This is where you will enter how many contracts you want to buy.
And as you know, each option is 100 shares, so the total cost will be $11.
It works the same way for Puts.
If you thought the Canopy Growth stock price was going down, you would just select Put instead of Call.
With that, you should be good to go!
With options, you just have to make sure you understand the reason why you think the stock price is going to climb or fall.
Do you think the company will have a good earnings report soon that will send the stock price up?
Do you think the company will have a bad earnings report that will send the stock price down?
Did a company have a bad earnings report that sent the stock price down but you think the response was an overreaction?
Is the company involved in a scandal – like CannTrust Holdings (NYSE: CTST) – and the stock price will keep falling?
Always make sure you know why you think a stock price is going to go up or go down before making an options trade.
We also mentioned earlier that you should have an exit strategy. Figure out when you want to cash out of a trade when it is up and also have a plan on when to sell your investment if it starts to go too far south.
Conclusion on Trading Canopy Growth Stock Options
Canopy Growth is so popular that it’s former CEO – Bruce Linton – is still buying shares!
Congratulations on correctly identifying that cannabis investing could lead to life-changing wealth, and we’re excited for you to start your journey.
To your investing success,
NICI Staff Reports
16 responses to “How to Buy Canopy Growth Stock Options on Robinhood”
November 05 2019