The Cabot Profit Booster Portfolio continues to do very well … though depending on which sectors are in favor and which are not on any given day, we have had some stocks moving up and down violently.
Cabot Profit Booster 128
The Cabot Profit Booster Portfolio continues to do very well … though depending on which sectors are in favor and which are not on any given day, we have had some stocks moving up and down violently. Regardless, of this daily volatility the portfolio is in great shape!
Of note, this Friday is expiration of June options, and it is very likely that our NUAN, ETSY, CHWY, CRWD, SNAP and LSCC positions will expire for full profits, while our MS, CHGG positions may or may not need some attention. Expect a detailed email about how we will manage all of these positions later this week.
Moving on to this week’s pick …
The Stock – Peloton (PTON)
On the surface, Peloton is just a maker of fancy exercise bikes (and, now, treadmills), but we think it’s much more than that—it’s really the leader in the connected fitness movement, where instead of marching to the local gym 10 or 20 minutes away, you’re able to get a high-quality workout from top-notch instructors from your own home (which, let’s face it, makes it more likely you’ll actually use the thing).
Growth has been solid for a while (connected fitness members, who pay $39 per month, nearly doubled last year), and the shut-in has kept growth in high gear, with paying members expanding from 712,000 at year-end to one million as of May 11. And it’s also seeing great demand for its standalone app ($13 per month), which is popular for those who don’t want to shell out $2,000-plus for the bike (176,000 app members at the end of March). Better than just the new sign-ups, though, is the fact that 90%-plus of members stick around and, on average, actually work out more and more over time.
Long story short, Peloton has a one-of-a-kind offering, and the top-notch execution and shut-in tailwinds have likely pulled profitability forward by two to three years (the firm is probably going to be EBITDA positive this year). Granted, some of those tailwinds could ease if the economy continues to reopen, but with just 3% of its target market, Peloton’s connected fitness idea should produce excellent growth for many years to come.
PTON hit a lifetime low in March, but immediately began to bounce and soared back to its high in mid-April, which was a great clue. After a two-week pullback, shares exploded to new highs on earnings and nearly tagged 50 before sellers put up a fight. PTON did take some lumps after that (22% drop from high to low), but net-net, shares have consolidated normally for the past four weeks with no signs of big-volume selling, and tested new high ground today. Stop - 40
The Covered Call Trade
Buy Peloton (PTON) Stock at 48, Sell to Open July 50 Strike Call (exp. 7/17) for $2.75, or a Net Price of $45.25 or less
Static Return: $275 per covered call (6.07%)
Covered Call Return (if assigned): $475 per covered call (10.49%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 45.25 or less. (In this case 48 minus 2.75 = 45.25. Or another example is you could pay 49 for the stock and sell the call for 3.75, which also equals 45.25)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …