Palantir (PLTR) Strategic Analysis using Options

by Baraxton

Disclaimer: Remember that everything discussed here is strictly for educational purposes only. Do your own homework and manage your risk accordingly. I am also long PLTR at the time of this writing.

Expected move: +/- $7.20 by Friday Feb 19

Upper Expected move: $41.20

Lower Expected move: $26.80

Potential move: +/- $9.20 by Friday Feb 19

Upper Potential move: $43.20

Lower Potential move: $24.80

Historical Volatility: 128.32%

Implied Volatility: 122.3%

Daily implied move: +/- 7.64%

Put-To-Call Interest: 0.87

1-year high: $45.00

1-year low: $9.18

Bullish Trade idea for Feb 19 expiration:

  • Purchase a $35/40 call spread for a debit of $1.32
  • Sell to open a $30 cash secured put for a credit of $1.55
  • This trade generates a net credit of $0.23
  • Max profit on the trade is $5.23 per contract and is achieved if PLTR remains above $40 at expiration

Neutral Trade idea for Feb 19 expiration:

  • Purchase 100 shares of stock at $34.00 (for half the position you would like to own)
  • Sell a cash secured put at the $30 strike for $1.55 credit (for the other half of the position in PLTR that you would not mind owning)
  • Sell a covered call at the $40 strike for $1.90 (you can sell 1 call option per 100 shares you own)
  • Your effective cost basis is $34.00 (price you paid for the stock) less $1.90 (covered call premium) less $1.55 (cash secured put premium) = $30.55
  • If Palantir trades below $30 on expiration, 100 shares will be assigned (per cash secured put sold). This will bring the effective cost basis down to $30.28.
  • If Palantir trades above $40 on expiration, the stock will be called away for a realized gain of $40 less $30.55 = $9.45. This represents a maximum potential return of 30.93% over a two week holding period.

Bearish Trade idea for Feb 19 expiration:

  • Purchase a $32/28 put ratio spread for a debit of $0.71
  • This trade is created by:
    • Buying to open 1 $32 strike put
    • Selling to open 2 $28 strike puts
  • 1st Breakeven on this trade is $32 less $0.71 = $31.29
  • 2nd Breakeven on this trade is the short strike less the spread width plus the net debit = $28 – $4 + $0.71 = $24.71.
  • A key factor of this trade is that the trader is comfortable with owning Palantir stock at $24.71 since 2 puts have been sold while only 1 is owned, which will result in the assignment of 100 shares if the stock remains below $28 at expiration.

Trade Adjustments:

  • Bullish trade idea modification – turn the bull call spread into a combo spread by selling the 45/50 call spread prior to expiration if PLTR rises to $40 prior to earnings as this will significantly reduce the net debit on the position.
  • Neutral trade idea modification – if PLTR trades below $30 at expiration, sell covered calls 1 month out above the breakeven price to further reduce cost basis.
  • Bearish trade idea modification – close 1 of the short puts out if PLTR trades significantly higher prior to earnings, which will remove assignment risk on the 2nd put that is sold.

Other considerations:

  • Earnings will be released on Tuesday February 16 before market open
  • Palantir insiders were able to sell just 20% of their holdings when they direct listed
  • Lockup period expires in mid-February (Feb 19th confirmed date) where insider shareholders will be permitted to sell the remaining 80% of their holdings
  • Just announced a new 5-year deal with BP

For those of you who would like to watch the video discussing the information above, the link is here:

Please let me know if you have any questions.

Stay safe and healthy and trade well!

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