DailyPlay – Peloton Interactive Inc (PTON) – October 4th, 2021

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Market Outlook:

Equities continued their decline last week but ended the week on a positive note after recovering some losses. SPY rejected the 100 D MA on Friday once again to close above it but momentum remains week and investors should note that this level could be broken this week indicating a further decline to support at $423. QQQ pulled back to its 100 D MA and recovered to retest the previous $360 support level. The sharp increase in yields that provided momentum for Financial names faded towards the end of the week allowing for a pullback in Financials. Risks remain to the downside for high beta stocks in general should yields resume higher. The dollar index (DXY) experienced a sharp gain to break above the $93.5 resistance level with strong momentum. Sector rotation is improving for the majority of sectors with Energy and Financials providing leadership.

PTON Bullish Trade Idea:
Our bullish trade is Peloton Interactive Inc (PTON). PTON is the largest interactive fitness company in the world. PTON has experienced poor performance in 2021 after declining from all-time highs above $160 to $86. However, both the technicals and fundamentals indicate that PTON may be oversold at current levels which provides a good risk/reward bullish opportunity. From a fundamental perspective, the relaunch of PTON’s Tread, reduced Bike cost, as well as continued development of PTON’s rower paints a favorable picture for the interactive fitness company. PTON has strong market leadership in the interactive fitness industry as well as solid organic subscriber growth. From a technical perspective, PTON’s RSI is currently oversold as price approaches the lower bound of its 2021 trading range.

The trade structure used for this bullish PTON trade is a call spread risk reversal. This is a very bullish strategy that involves selling an OTM put option and purchasing a call debit spread. By selling an OTM put, the cost of purchasing the call debit spread is drastically reduced. The cost basis of the debit spread alone is $6.70 and the premium received from selling the put option is $5.90. Therefore, the net debit paid is reduced from $6.70 to $0.80 ($6.70 – $5.90). 

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