Investment Reflection: Cash-Secured Put Option on Palantir
Overview of the Strategy
On May 21, 2024, I sold a cash-secured put option for Palantir $Palantir Technologies Inc.(PLTR)$
Initial Rationale
The decision to sell the put option was grounded in several key factors:
1. Stock Performance: Palantir’s stock was priced at $23.52, reflecting an impressive 214.84% growth over the past year.
2. Financial Growth: The company exhibited robust quarterly revenue growth and a significant improvement in EBIT from negative to positive between 2022 and 2023. Notably, Palantir's free cash flow (FCF) more than doubled from $131.88 million in Q3 2023 to $296.31 million in Q4 2023.
3. Strategic Partnerships: The partnership with Oracle aimed to leverage AI and cloud-based solutions, expected to expand Palantir's customer base and enhance its systems' security.
Given these positive indicators, I believed the stock would remain above the $20 strike price, thereby allowing me to collect the premium without being assigned the stock.
Outcome and Reflection
On May 30, 2024, I closed the position for $20 when Palantir's stock price reached its peak at $21.96. This action resulted in a realized gain from the option strategy.
Key Points of Reflection:
1. Profitability: The initial premium received was $40. By closing the position at $20, I secured a net profit of $20 ($40 premium received - $20 cost to close the position).
2. Market Timing: Closing the position when the stock price reached $21.96 was a prudent decision. This allowed me to lock in profits while the stock was near its peak, minimizing potential risk if the stock price had reversed.
3. Stock Performance: Although the stock price decreased slightly from $23.52 to $21.96, it remained comfortably above the $20 strike price, validating the initial assessment of Palantir's resilience and growth prospects.
4. Risk Management: The cash-secured put strategy effectively managed risk by ensuring I had the necessary capital to purchase the stock if assigned. The decision to close the position early also mitigated potential downside risk.
Conclusion
The cash-secured put option strategy on Palantir proved to be a successful investment, yielding a net profit of $20. The decision was well-supported by Palantir’s strong financials, strategic growth initiatives, and positive market sentiment.
Given Palantir's continued innovation and strategic partnerships, it remains a strong candidate for future investment opportunities. However, maintaining vigilance over market conditions and company performance will be essential in executing successful options strategies in the future.
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