An Options Trade to Benefit from Palantir's Potential Turnaround After Earnings
Palantir Technologies, the highly valued AI darling, has been hit hard by the ongoing software stock sell-off. The company's stock recently dropped below its 200-day moving average for the first time since August 5, 2024, and ended January with its lowest close since July. This is a concerning trend for a defense data and AI software company, especially as its Q4 earnings report is due after the market close on Monday.
However, Dean Curnutt, CEO of Macro Risk Advisors, believes there's an opportunity to profit from this downturn. He recommends a unique options trade strategy:
- Buy call options with a strike price of $162.50 that expire on Friday.
- Sell the same amount of calls with a strike price of $182.50 that expire on Friday.
This trade has the potential for a significant payout, with a ratio of roughly 10.5 to 1. Curnutt's rationale is based on historical performance: when Palantir has been this undervalued ahead of earnings, its shares have typically rebounded strongly afterward.
"As of right now, PLTR T-3 move is -11%," he states. "If you look at the last 8 quarters in the attached table, the only 2 times where the T-3 was negative (8/6/24 and 11/5/24), the T+5 moves were +22% and +45% respectively."
Despite the recent losses, other software stocks like Unity Software, Roblox, and Take-Two have shown resilience, recovering at least 3% on Monday. However, Palantir's situation remains uncertain, and investors should carefully consider the risks before making any trading decisions.
In other news, rare earth and critical minerals stocks are soaring due to President Trump's planned $12 billion initiative to stockpile these materials, which are crucial for various industries, including electronics and electric vehicles. This development could significantly impact the market, and investors are taking notice.
