CBD Deal Sparks Major Upside for This Penny Stock

Martha Stewart will advise the company on its pot products

The shares of Sequential Brands Group Inc (NASDAQ:SQBG) are soaring today, after the apparel and lifestyle concern announcedit would be partnering with Canopy Growth (CGC) to develop a line of CBD-based products. Martha Stewart, whose consumer brand is owned by Sequential, was named as an advisor in developing the new line for animals and humans. SQBG is now up 30% at $1.55 -- pacing for its biggest one-day jump since February 2016 -- and options traders are rolling the dice on more upside.

The stock hit a seven-year low of $0.67 on Dec. 27. Since then, however, SQBG shares have more than doubled, and are set to end atop their 200-day moving average for the first time since August.

The stock's typically quiet options pits are seeing heavy activity today, with more than 1,100 calls on the tape. Most of the action has transpired at the March 2.50 call, where it appears traders are buying the options to open. By doing so, they expect SQBG shares to topple $2.50 by the close on Friday, March 15, when front-month options expire.

Analysts have been pretty quiet on the penny stock, with the three who do follow SQBG all maintaining "hold" positions. However,the consensus 12-month price target of $1.25 is now a nearly 20% discount to current levels. A round of upgrades and price-target hikes could lure more buyers to the table.

An unwinding of short interest could boost Sequential Brands, too. The 3 million shares sold short currently represent 8.5% of the stock's available float, and would take over 62 sessions to cover, at SQBG's average daily volume.