A Workout Stock for Bulls' New Year's Resolutions

The equity sports attractively priced premiums at the moment

Jan 13, 2021 at 10:31 AM
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Following an upbeat November earnings report and purchase of Precor, stay-at-home workout staple Peloton Interactive Inc (NASDAQ:PTON) broke out from a steep falling wedge, and nabbed support from its 20-day moving average. In addition, the shares gapped above the $145 level, which is five time the equity's initial public offering (IPO) price. With the gap filled and support at the +400% year-over-year level in place, alongside the 140-strike peak put level, now seems like a good time to bet on PTON's next move higher.

In the options pits, there's been an unusual penchant for puts. In fact, Peloton stock sports a 10-day put/call volume ratio of 1.17 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the elevated 96th percentile of its annual range, indicating a much healthier-than-usual appetite for puts. Echoing this, the security's Schaeffer's put/call ratio (SOIR) of 1.35 also stands in the 96th percentile of the past 12 months, suggesting short-term options traders have rarely been more put-biased.

Meanwhile, short interest is building, rising 11.4% over the last two weeks. Currently, the 15.75 million shares sold short account for 6.4% of the stock's available float. A rally could force new shorts to cover.

Lastly, options are relatively cheap at the moment. This is per PTON's Schaeffer's Volatility Index (SVI) of 59%, which ranks in the lowest percentile of readings from the past year, indicating options players are pricing in low volatility expectations at the moment. Our recommended call has a leverage ratio of 4.4, and will double in value on a 24.6% rise in the underlying security.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this PTON commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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