ACB looks ripe for a short squeeze
The shares of Aurora Cannabis Inc (NASDAQ:ACB) are up 3.4% to trade at $6.60 at last check, despite the cannabis company reporting worse-than-expected fiscal fourth-quarter earnings and revenue. Pandemic-related restrictions weighed down consumer demand, leading Canadian provinces to cut orders. However, the marijuana name has benefited from aggressive cost-cutting measures, as well as overall demand for cannabis-related products.
The stock is attracting mixed analyst attention this morning. MKM Partners upgraded ACB to "neutral," and raised its price objective to C$7 from C$6. Meanwhile, Canaccord Genuity cut its price target to C$6.50 from C$7. Analysts were bearish on ACB coming into today, with seven sporting a tepid "hold" rating, while seven called it a "strong sell."
Meanwhile, short sellers have been piling on, leaving the stock ripe for a short squeeze. Short interest rose 6.1% in the last two reporting periods, and the 39 million shares sold short make up a whopping 19.8% of ACB's available float, or nearly two weeks' worth of pent-up buying power, at the stock's average pace of trading.
That pessimism is reflected in the options pits. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ACB's 10-day put/call volume ratio stands higher than all readings from the past year, indicating puts have been getting picked up at a quicker-than-usual clip in the last two weeks. Should some of this sentiment begin to unwind, shares could surge even higher.
Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) sits higher than 99% of readings from the past year. This means short-term options traders have rarely been more put-biased.
A sentiment shift may already be taking place today. So far, 12,000 calls and 4,913 puts have crossed the tape, which is four times what is typically seen at this point. The most popular is the 10/1 6.50-strike call, followed by the 7-strike call in that same weekly series.
Overhead pressure from its 100-day moving average has been keeping a tight lid on Aurora Cannabis stock since March. The security seems to have recently found a foothold at the $6 mark, though it remains off 21.2% in 2021. Despite the deficit, ACB remains a ways off its Oct. 28 record low of $3.71.