Following a nasty drawdown from the all-time highs made back in 2021, Peloton Interactive $PTON is coiling at the upper bounds of a textbook bearish-to-bullish reversal pattern.
An upside resolution from the past month's trading range will confirm a new primary uptrend for this battered growth stock.
Here’s the chart:
Peloton is sporting a 20% short interest and 4x days to cover ratio, which means if we get the move we’re looking for, it should be a big one.
What we’re doing here is simple. Let’s walk through it.
The worst stocks, the cycle laggards, the non-participators, the most-heavily shorted names… they are all working out here these past few weeks. A lot of them are beaten-down speculative growth names just like PTON.
This is the same theme that delivered us a winner with Paypal recently. We could probably say the same thing with RKT and PLTR, although they had some stock-specific tailwinds going for them.
This spec-tech story is also why we are holding out hope for our SOUN calls.
The point is this is a monster theme right now, and it keeps working. So, let’s go back to the well.
PTON ripped higher by roughly 40% when it reported earnings in late August. Now it is coiled in a perfect flag pattern coming off this momentous move.
We are making the bet that this flag will resolve higher, and soon.
The automatic reaction from that pattern should give us a good 20-30% move and allow us to sell the double.
Even under this scenario, though, the reality is our calls are unlikely to be in-the-money before the next earnings report. This would require close to a 40% move before the end of October.
But the price trend is now higher, and the earnings trend is bullish after a huge positive reaction last Q.
The calls aren’t cheap, but the technical setup is so good that I love our odds of getting a double here.
In the event that we do, we can take half off, and effectively earn ourselves a lottery ticket on the earnings report… and we know what happened last time.
Here's how we’re going to do it:
We are buying the $PTON 11/15 $7 calls for approximately $0.16 per contract. They are bid/ask 0.15/0.17 right now.
Earnings are scheduled for the morning of October 31st, so this is the ideal expiration. We have plenty of time to sell the double before then.
Now, remember what we are trying to do with the Breakout Multiplier system. We are using our edge to put us in the position to make outsized profits.
Trading earnings isn’t something we try to do too often. But imagine a free earnings ticket with unlimited upside and no chance of losing. Now imagine that with a high-beta, heavily shorted stock that rallied 50% the last time it reported earnings?
I think you get it.
We’re swinging for the fences with PTON on this one. This is what Breakout Multiplier is all about.
