Strategizing with Low Volatility: A Long Strangle Play on Palantir (PLTR)

In the current options landscape for Palantir Technologies Inc. (PLTR), a compelling opportunity emerges for traders seeking to exploit volatility compression. With implied volatility (IV) for December 2025 options at 42.37%, a stark 37.3% discount to the 252-day historical volatility (HV) mean of 66.9%, the market appears to be underpricing potential catalyst-driven price swings. This divergence sets the stage for a long strangle strategy-a high-reward, low-probability-risk approach that capitalizes on the expectation of volatility expansion around key events.

The Case for a Long Strangle

A long strangle involves purchasing out-of-the-money (OTM) call and put options, profiting if the underlying asset moves significantly in either direction. For PLTR, the current IV compression reduces the cost basis of these options, making the strategy more capital-efficient. For instance, the February 2026 $87.50 call option carries an IV of 86.28%, while the $75.00 put trades at 66% IV. These elevated levels for the February 2026 expiration-compared to the December 2025 IV of 42.37%-reflect market anticipation of volatility around Palantir's Q4 2025 earnings, forecasted for February 2, 2026.

The asymmetry here is critical. If PLTR's stock reacts more strongly to earnings or other catalysts than the market expects, the strangle could yield outsized returns. For example, the implied move for the February 2026 expiration is priced at $1.056 (0.5599%), but a surprise in revenue or AI-related announcements could trigger a much larger move.

Catalysts Driving Volatility Potential

Palantir's business trajectory in late 2025 and early 2026 provides fertile ground for such volatility. The company has positioned itself as a cornerstone of agentic AI infrastructure, with its Artificial Intelligence Platform (AIP) enabling autonomous systems to manage complex workflows and global supply chains. Recent developments, including a 121% year-over-year surge in U.S. commercial revenue and a 55% growth in government contracts, underscore its dual-market dominance.

Moreover, Palantir's long-term government contracts-such as the U.S. Army's Vantage platform and ICE's renewed Gotham analytics agreement-ensure recurring revenue streams. These fundamentals, combined with its shift toward Agentic AI (where software executes actions autonomously within guardrails), create a narrative that could drive sharp price reactions if earnings or product updates exceed expectations.

Historical Volatility Compression and Risk Mitigation

While the long strangle benefits from low entry costs, it faces risks from post-earnings IV compression. Historical data indicates that PLTR's IV typically drops by 28% after earnings reports, a trend that could erode gains if the stock's actual move is insufficient to offset the decline. However, the current IV rank of 2.73% suggests that even a modest expansion toward the 252-day HV mean could generate positive returns.

For instance, if PLTR's stock gaps up or down by more than $1.056 on earnings, the strangle's profit potential outweighs the IV decay risk. This scenario is plausible given the company's recent performance: Q3 2025 revenue hit $1.181 billion, with full-year 2025 revenue forecasted at $4.4 billion. Such growth metrics often lead to earnings surprises, particularly in a market that may still be underestimating Palantir's AI monetization capabilities.

Strategic Implementation and Exit Criteria

To execute this strategy, traders should focus on the February 2026 expiration, where IV differentials are most pronounced. A balanced approach-buying OTM calls and puts with strike prices aligned with the forecasted move-limits downside while retaining upside flexibility. Exit criteria should include:
1. Profit-taking if the stock gaps beyond the forecasted move, locking in gains before IV normalizes.
2. Closing the position if the stock consolidates near the strike prices, minimizing losses from time decay.

Conclusion

The long strangle on PLTR leverages a rare confluence of low IV, high-impact catalysts, and a favorable risk-reward profile. While volatility compression post-earnings poses a tail risk, the current pricing environment and Palantir's AI-driven growth trajectory make this strategy a compelling case study in volatility arbitrage. As the market approaches February 2026, traders who position early may find themselves well-placed to capitalize on a stock that continues to redefine its role in the AI ecosystem.