Exercise equipment manufacturer Peloton (PTON) is up 65% over the past year, but shares have been pulling back with the rest of the market. One trader sees shares breaking lower by the end of next year.
That’s based on the January 2027 $3 puts. 11,570 contracts traded compared to a prior open interest of 237, for a 49-fold rise in volume on the trade. The buyer of the puts paid $0.42 to make the bullish bet, which expires in 613 days.
Peloton shares currently trade for about $6.50. Shares would need to lose more than 50% of their value for the option to move in-the-money. Given that Peloton is already down considerably from its 52-week high of $10.90, such a move is possible.
The company has been working to retool itself over the past few years, following a surge higher during the pandemic that failed to pan out.
However, earnings remain elusive, and the most recent quarterly announcement showed a loss of 12 cents per share.
Action to take: Peloton could fare better in time if it works on cost-cutting and keeping margins high with some of its services. However, the turnaround isn’t quite panning out, suggesting more downside ahead.
Investors may want to avoid shares for now, until Peloton can demonstrate improving, not deteriorating earnings.
For traders, the January 2027 $3 puts are a way to bet on a massive swing lower over the next 18 months. The strike price of those puts are right near Peloton’s 52-week low of $2.83, and the option could see triple-digit returns on a steep enough decline.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.