(Bloomberg) -- As equity investors caught up in the cannabis craze push pot stocks to record highs, options traders are paying the most ever to hedge against a comedown.
Skyrocketing marijuana stocks have pushed the $560 million ETFMG Alternative Harvest ETF, ticker MJ, up more than 60 percent since mid-August. At the same time, the cost of options to protect against a 10 percent drop in the fund has surged to an all-time high relative to those betting on gains of the same magnitude.
The rally in the ETF, which last year changed its focus from Latin America real estate to cannabis-related stocks, comes as pot companies surge ahead of the full legalization of weed in Canada next month. Canopy Growth Corp., the ETF’s biggest holding, has doubled in since mid-August when Constellation Brands Inc. announced a $3.8 billion investment in the weed grower. Tilray Inc., the fund’s third-largest holding, has increased more than 700 percent since its debut two months ago.
The ETF rallied as much as 12 percent on Tuesday to $41.50, a record high, compared with a 0.6 percent gain in the S&P 500 Index. The pot fund’s 30-day historical volatility rose to the highest since January relative to the benchmark index.
Tilray gained as much as 28 percent on Tuesday after the British Columbia-based cannabis company received approval from the U.S. government to import medical marijuana into the country for a clinical trial. The news lifted the entire sector: Aurora Cannabis Inc. climbed 7.3 percent, Canopy Growth advanced 7.5 percent and Cronos Group Inc. jumped 19 percent.
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