Palantir's Double Butterfly: A $1,547 Opportunity

As an investor, you're always on the lookout for opportunities that can generate significant profits. Today, I want to share a strategy involving Palantir Technologies (PLTR) that could turn a profit of $1,547. This double butterfly strategy, as outlined by Anne-Marie Baiynd, involves a short put spread and a long call butterfly. Let's dive into the details and explore how this strategy can benefit from Palantir's strong fundamentals and potential earnings surprises.

Palantir's stock has been a solid mover in 2024, with an IBD Composite Rating of 99. The company's strong fundamentals, including over 70% of companies having a lower mix of growth, profitability, debt, and visibility, contribute to the bullish sentiment. Analysts expect a sharply increasing business volume for the group, with high growth rates in the coming years. The earnings growth anticipated by analysts for the coming years is particularly strong, with high margin levels accounting for strong profits (Exhibit 99.1).



The double butterfly strategy involves two main components:

1. Short Put Spread: This position benefits from a lack of significant movement in the stock price around earnings. If Palantir's earnings are in line with or slightly better than expectations, the stock price is likely to remain relatively stable or move slightly higher. This would result in the short put spread expiring worthless, allowing the trader to keep the premium received. In Palantir's case, the company has a history of releasing upbeat results with huge surprise rates (Exhibit 99.1). If this trend continues, the short put spread could be a profitable position.
2. Long Call Butterfly: This position is designed to profit from a large move in either direction. If Palantir's earnings result in a significant surprise, either positive or negative, the stock price could experience a substantial move. In this scenario, the long call butterfly could generate significant profits. For example, if Palantir reports earnings that are much better than expected, the stock price could surge, allowing the trader to profit from the long call spread. Conversely, if earnings are much worse than expected, the stock price could plummet, but the short call spreads would limit the losses.

To implement this strategy, you would sell a put spread by selling an out-of-the-money put and buying another with a lower strike to protect or hedge any extraordinary price action. Set it up this way:

Sell to open 1 PLTR Dec. 20-expiring 35 put
Buy to open 1 PLTR Dec. 20 30 put

This trade delivers a credit of $81 per share of a 100-shares contract, based on recent trading. The maximum loss for the position is calculated by subtracting the distance between the strikes and then the premium collected, which is $419 per set of options.

For the long call butterfly, position it this way:

Buy to open 1 PLTR Dec. 20 50 call
Sell to open 3 PLTR Dec. 20 60 calls
Buy to open 2 PLTR Dec. 20 65 calls

This call butterfly costs $86 per set of contracts, making $86 the maximum potential loss. The maximum gain comes out to $9.14, or $914 before commissions.

The key to this strategy is managing risk exposure. Given the increased market volatility and uncertainty during the election cycle, it's crucial to monitor risk exposure and adjust position size accordingly. Keep in mind that the short put spread has a maximum loss of $419 per set of options, while the long call butterfly has a maximum loss of $86 per set of contracts.

In conclusion, the double butterfly strategy for Palantir stock is designed to profit from earnings-related price movements. If earnings expectations are met or slightly exceeded, the short put spread could be a profitable position. If earnings result in a significant surprise, the long call butterfly could generate substantial profits. By understanding the potential risks and rewards, traders can position themselves accordingly and potentially benefit from this strategy.