- I'm bullish on Sleep Number's long-term prospects, but there is a lot of buzz right now about a recession in the mattress industry.
- For those looking for a hedge against short-term industry risk, I think puts on Purple Innovation make a lot of sense.
- Sleep Number and Purple have similar business models, but I give Sleep Number the edge in product differentiation, operational effectiveness, and cash flow stability.
- If there is a mattress industry meltdown, Purple faces liquidity risks, and the share price will suffer. If not, Sleep Number should rise enough to outpace Purple put losses.
- I propose puts instead of outright shorting, as there are scenarios where Purple outperforms Sleep Number in a dramatic industry recovery.
For further details see:
Sleep Number And Purple Innovation: A Pair Trade Idea