Trading Peloton Stock Options for a Free Bike!

So my wife Rachel’s birthday was last week and I wanted to get her something she really wanted, but wouldn’t be expecting. We’ve talked about it before and I knew that she really wanted a Peloton bike. Now despite all of the backlash they received over their holiday ad… I knew that this is something she’d love.

Here’s the thing: it’s crazy expensive. Yes, there are cheaper alternatives for sure. Yes, it’s certainly a luxury purchase.

So, at the beginning of August I went ahead and placed the order. After a pair of shoes, a promo code, and taxes, I spent $2,485.64.

I know, I know.

So I thought it’d be a fun to focus on the Peloton stock when trading options to see if I can earn enough trading PTON to pay for the bike. I’m also taking into account the 30% I’d take from stock market gains and set aside for taxes, so my total goal for this video is $3,550.

The bike isn’t scheduled to get here until October 4th, so I’m going to set that as my deadline for this experiment. I am hoping I’ll finish ahead of schedule, but we’ll have to see how it goes.

Yes, this video is going to be ridiculous. I already know.

No, I don’t think this is easily replicable.

And no, I’m not recommending you should do this either. This is simply a challenge for myself to see if I can pull it off.

PELOTON COST: 2,485.64

GOAL: $3,550

The stock has been on a tear the last few months, with a lot of the US gyms either shutdown or people not feeling comfortable going to gyms to workout. Peloton has seen an influx of orders, with it taking them 6-8 weeks to get bikes delivered to customers.

They have earnings After Market close on September 10th, so I’m going to buy options leading up to earnings and likely sell them off before the 10th.

Okay, so I’m going to use a couple of my brokerage accounts here for this challenge – one on Robinhood and one on TD Ameritrade. Both accounts are currently under $25k, so because of regulations, I am limited in the amount of daytrades I can do, so having two accounts gives me twice the daytrades if I need them. Also, if this whole challenge turns against me and I lose money, it will be spread between the two accounts which – idk makes me feel a little better I guess.

And second – if you don’t understand stock options at all, I made a video covering the basics, so check that out to learn more.

STARTING OUT

So to kick things off, on Thursday, August 27th, I bought 3 options of Peloton, expiring September 18th, with a strike price of $73. Each contract was $565, for a total of $1,695.

I also grabbed the same options contract over in Robinhood a little later for $535.

On Friday, the very next day, Peloton jumped up, so I went ahead and sold off the Robinhood contract for $680. I also sold off two of the three contracts in TD Ameritrade for $705 apiece.

I now have one contract left, which I’ll likely hang onto a bit longer. I also grabbed two more Peloton contracts in Robinhood, for a strike price of $80. Those cost me $580 apiece.

It’s Saturday, so I’ll see how the market opens Monday.

Tuesday, 9/1

I sold my remaining Peloton contract in TD Ameritrade for $905, with the entire trade of 3 contracts profiting me $620. Subtract that from my goal of $3,550, I’m now $2,930 away from reaching my goal.

Over in Robinhood, I sold one of my two contracts off for $960.

I also decided to open a few more positions. I bought 3 more contracts with the same expiration and a strike price of $90. These were $540 apiece.

WEDNESDAY

Well, I feel like I’m getting ridiculously lucky. Analysts raised the price target of Peloton from $58 to $105 and Peloton opened at a new high, so I went ahead and sold my 3 contracts I bought for $1,620 at 6:31 this morning for $2,997 for a $1,377 profit.

Combined with yesterday’s profit of $620, I’m now at $1,997 in profit

And over on my Robinhood account, I sold my remaining option for $1440, locking in a total profit of $1,385 there, bringing my total profit to $3,382. I am now just $168 away from my goal, which is pretty crazy.

Peloton started dumping off this morning along with most of the tech stocks. This should provide me an ample opportunity to get back into a trade to try and earn the remaining $168. So I’ll keep an eye on the chart and look for an entry.

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Okay, I ended up buying four contracts for $7.30… but Peloton continued to drop. So I decided to average down… meaning buy more contracts – now at a lower price. So I just picked up four more at $6.83, lowering my cost basis – or the average of how much each contract costs me to $7.06. Now I’m going to keep a close eye on Peloton and see if I can’t just finish out this challenge today.

Alright, I am now up $348 on my Peloton contracts, so I can close it out to officially end my Peloton challenge…. But that seems too boring. I truly didn’t expect to hit this goal so quickly but the market right now seems pretty disconnected from reality.

I think I’m gonna hold onto these contracts, let ‘em keep going, and see what happens.

Okay so I’m up $368 so I’m going to sell off a couple to hit my goal and see if I just leave these running…. Okay, I’m still really tired I only sold two instead of 4 so let me sell two more.

Alright, so I sold two at $750 each and two more at $751 each. My cost basis for the contracts were $706, so that gives me a $178 profit, beating my goal by $10.

Thursday

So I’m in middle of editing this video and I forgot to record me selling 3 of my four contracts on September 3rd. I sold those for a small loss at $685/each.

Well this market opened this morning with a pretty big tech sell-off.

Now, you may be wondering why I keep selling and then re-buying, so let me explain.

On something like this where I’m filming it and recording the process, I’m being extra conservative, making sure to lock in profit.

So if we look at the very first Peloton options contract we bought that had a strike price of $73… those were $565 each. Today, that same contract is going for about $19. If we held onto them until today and sold them, we’d make over $4,000 in profit. So looking back, that was one of the simplest ways to complete this challenge, but back then we obviously had no idea that the stock would go from around $70 to the high $80s.

Once I sell, I can reassess both the market in general and Peloton specifically. I can also buy a contract with a different expiration date if I want more time on the contract. So it’s just a good way to keep my account in the green.

TUESDAY 9/8

Alright, it’s been quite a few days so let me give you an update.

First, Peloton just announced they’re lowering the price of the bike I bought… by like $350…and coming out with a more premium and more expensive bike. Luckily, they pre-emptively refunded me the $350 plus tax difference, so that actually means I’ve paid for the bike at this point. But, I am going to leave my goal the same and anything extra will just go towards the monthly fee for class access.

So anyways, the market has been correcting the past few days, resulting in a continued sell-off for most of the tech sector. I didn’t want to hold any Peloton over the three-day weekend, so I closed out my last Peloton position for a loss of $173 dollars.

Today, I bought two contracts that expire in October with a strike price of $100 for $815 each.

Despite most other tickers having a pretty rough day, Peloton was booming. Earnings are in two days and it definitely has a lot of optimism and hype. At it’s hi of the day, I was up about $700 on this trade, but I do want to swing it at least until tomorrow and see what happens.

Then, about 90 minutes before close, it sold off, with the share price dropping by about $7 from the high of the day. As it stands right now, after the market has closed, I am up $61… almost 4%.

Hopefully Peloton will continue to rally through earnings. My plan is to sell my contracts before market close on Thursday, because playing earnings can be very treacherous, but it’s possible I may play it with one or two contracts.

That’s all for today, I’ll check back in later this week!

FRIDAY 9/11

Okay, so I forgot to mention that on Tuesday I did buy a call for $960 and sold it yesterday for $1105 for a $145 profit.

So you can see that after-hours, Peloton shot up considerably. It did start selling off at market open today, so I decided to sell 4 of my 6 contracts when I was up almost 26% at $996 each. And a minute or so later, I decided to sell my last two for $783 each.

For those 6 contracts, I spent $4,872 and the amount I made when I sold was $5,550, netting me $678 in profit.

So overall, holding through earnings did work out for me, but it was pretty risky. Throughout this challenge, I ended up profiting a total of $4,723, beating my goal by $1,173, which combined with the $350 refund from Peloton, will pay for the monthly subscription for the next three years.

And just to mention it again, it did take money to make money in this case. Peloton calls were on the expensive side, so I was really only able to do this challenge because I had enough funds in my account to buy enough calls to make that much money.

Now, I just have to wait for the bike to arrive.

So I just want to reinforce that I definitely did get lucky with my plays and it’s not something you should just jump into blindly. But, there are times when if you’re bullish on a company you may be able to profit on their stock price run-up before earnings. But as always, do your own due diligence and establish your exit strategy before jumping into a trade.

That’s it for this video, I’ll see you in the next one.