Crash Protection For Peloton

Screen capture via Peloton

One Of The Winners Of The COVID-19 Economy

With so many gyms closed due to COVID-19 lockdowns, one of the companies benefiting from that has been Peloton Interactive (PTON). Peloton's signature product is a stationary bike that costs about $2,500 with accessories, after which you pay $39 per month for online classes taught by instructors such as Leanne Hainsby. Here she talks about making people smile. 

Peloton shareholders have certainly had something to smile about, with the stock up more than 220% year-to-date as of Wednesday's close. 

Chart
Data by YCharts

That big spike on Tuesday came after JP Morgan raised its price target for Peloton. 

Maybe It's Time To Lock In Some Gains

There are a couple of obvious reasons why longs may want to lock in some gains here. The first is that this market advance has been kind of nuts, as Zero Hedge suggests below, noting the level of the VIX relative to the recent market highs. 

The second is that lockdowns are starting to lift. Even in New Jersey, which has had one of the strictest lockdowns in America, gyms finally opened on September 1st.

One might speculate here that Peloton customers who got used to exercising at home might continue to do so, but consider a counterpoint to that: a lot of people have been going stir crazy from the lockdowns. Many of them will welcome the opportunity to leave their homes and do a spin class in a gym instead of riding a Peloton at home. 

Adding Downside Protection To Peloton

As you might expect, given the high VIX, Peloton, like many stocks, is pretty expensive to hedge with put options now. It's actually inexpensive to hedge with some optimal, or least-expensive collars though. In the video below, I walk through a couple of examples using the Portfolio Armor iPhone app