Peloton's due for a pop.
That's what TradingAnalysis.com founder Todd Gordon bet on this week as the struggling exercise equipment stock tumbled, falling over 6% in Friday's trading session alone. Shares closed at $29.99.
Peloton has indeed become a target of Wall Street and Main Street criticism in recent weeks. An ad released by the company in early December about a husband buying his wife a Peloton bike encountered backlash from viewers who found it to have sexist undertones, and a note from short-selling firm Citron Research this week cast the company as flawed and "overly promotional," with "an unrealistic valuation."
But Gordon — who jokes that he's guilty of being a "Peloton husband" because he bought his wife one of the company's bikes as a gift — forecasts good things for the stock in the new year. Peloton shares are up less than 4% since the September IPO.
First, Gordon had his own critiques of Citron Research's call. The firm, run by activist short-seller Andrew Left, set a $5 price target for Peloton's stock, comparing it to two other fitness plays whose value eroded dramatically in the years following their public debuts: GoPro and Fitbit.
"GoPro, I think, failed in the social community because it relies on the end users to produce the content and also edit themselves. It's ... hard to kind of build that content, where[as] Peloton, they're producing the content themselves by highly paid professionals," Gordon said on CNBC's "Trading Nation."
"Fitbit I don't even think came anywhere near [having] a community that either GoPro or Peloton has, so I don't think it's comparing apples to apples here," he said.
Gordon also saw some encouraging signs coming to the fore in Peloton's chart despite the stock's nearly 15% decline so far this month.
"[It] looks like we've got resistance that should come in right about [$]34, and a break through there should allow us to go up and potentially challenge new highs," he said, pointing to the stock's 20-day moving average.
To play the potential bounce, Gordon turned to the options market. Because there were no options available that expire near Peloton's early February earnings report, he looked out to late March to make his bet.
"What I'd like to do in this trade is buy in the March 20 options," Gordon said.
He bought the $34-strike call and sold the $38-strike call, which cost him between $1 and $1.10. That trade represents a bet that Peloton's stock could climb between 13% and 26.7% from its Friday closing price.
"I'd even be willing to pay up to $1.20," adding that investors could reap "about $300 of potential reward" by buying in near those levels.
As always, Gordon recommended position-sizing such that investors can exit the trade if the $1-$1.10 premium contracts.
Disclosure: CNBC parent Comcast-NBCUniversal is an investor in Peloton.
