The cannabis sector is on fire – in a good way!

What a difference a couple of months can make. Back in November and December, pot stocks were getting killed across the board.

The thinking now is that these stocks have bottomed – and that they’ll no longer decrease significantly.

It’s important to know that what happened with pot stocks is actually a game Wall Street plays all the time – and you need to know how to interpret it.

Let me explain…

To start, brokers hype up companies, which leads to an increase in share value of those companies. Then the hype fades and sometimes those companies fail to deliver – that will result in the shares plummeting.

While many investors aren’t in on the ruse, savvy investors watch the panic-selling and wait for a bottom to form. When all the stocks in a sector get crushed simultaneously, that’s pretty much your signal.

And when investors throw out the good with the bad, it’s time to look very closely at the sector.

That’s what we did in The War Room with the cannabis sector. But instead of trying to buy at the low, we wanted to create our own low.

War Room members did that by selling put options on “the best of breed” cannabis company, Canopy Growth Corp. (NYSE: CGC).

Canopy is cash rich after a $4 billion injection by beverage powerhouse Constellation Brands, which now controls Canopy’s board and has installed its own executives.

The company has more reach and greater breadth than most other cannabis companies. It is first in line to open new physical locations in Canada, and it’s working on being a dominant global player. It also has an array of products ranging from edibles to medicinal products.

When you sell a put option, you are agreeing to buy shares at a lower price or collecting income just for trying. In The War Room, I’m looking for members to get at a least a quick 25% gain for taking that risk.

How much risk? I’m so glad you asked.

On our picks, we look for a discount to market of at least 20% and a probability of getting “put” of less than 20%. If we were to get put, which means being forced to buy shares of the stock you’re put selling (Canopy in this case), we’d want to be able to buy those shares at 20% less than what they’re currently trading for.

In the case of Canopy, I calculated that the probability of getting put was right at 20%, but the discount to the market price was more than 50% when we sold the put!

This means that Canopy shares would have had to fall by more than half from their lows before War Room members would see a loss. That is a great bet in my book, especially when the chances of that happening were calculated to be less than 20%!

Action Plan: This week, Canopy has had great success, and War Room members puts are losing value, just as they should be.

They could cover their puts right now for a nice gain – some members of The War Room already did! But with the official War Room portfolio, we’re going to stick to our guns and try to get the best price.

Why? The discount between the market price and our potential cost is now almost 75%! For more insight on great picks like this and information on a variety of sectors, join me in The War Room today!