Wait for a Drop in Price Before Buying Sundial Growers

SNDL Stock - Wait for a Drop in Price Before Buying Sundial Growers

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Shares of cannabis company Sundial Growers (NASDAQ:SNDL) continue to struggle after reaching euphoric levels in February 2021. This was during the height of the meme stock trend, when SNDL stock was a favorite short-squeeze pick. Now that this has subsided, Sundial Growers has to prove itself, so wait for a further drop before buying shares.

The U.S. House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement (MORE) Act on April 1. The goal of the legislation is to decriminalize marijuana on a federal level. That’s all good, expect there is virtually zero chance the Senate will pass the bill.

However, the benefit to cannabis companies might be overstated even if the MORE Act becomes law. Canada has decriminalized marijuana since 2018, yet less than 20% of sales take place in retail establishments. High taxes and operating costs made purchasing through a retailer less cost effective for potential buyers.

I wrote in late March that cannabis stocks have gotten a little too high and were due for a pullback, mostly due to an overly optimistic view of federal legalization. That proved to be prescient with the majority of marijuana-linked stocks falling sharply since then, Sundial Growers included.

The 50 cent level has been long-term support and is potentially a viable initial entry point. Option traders can target this area as well by selling 50 cent strike puts and collecting a comparatively rich option premium. They’ll be paid now to be a buyer later.

For example, January 2023 50 cent puts are trading around 18 cents. Selling these puts positions you to be a buyer of SNDL stock at 32 cents (a 50 cent strike price less 15 cents for the option premium received.) For reference, SNDL stock last traded around that price in November 2020.

Investors and traders looking to add SNDL stock to their portfolio would be better served waiting for lower prices. Using a put selling strategy is a viable way to take advantage of rich option premiums and get paid for your patience.

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On the date of publication, Tim Biggam did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


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