To The Moon

Overview of the Investment Strategy

On May 31, 2024, I opened two contracts of a vertical put option on Palantir Technologies (PLTR) $Palantir Technologies Inc.(PLTR)$  , with a maturity date of July 19, 2024. The strategy involved selling put options at a strike price of USD 21 and buying put options at a strike price of USD 20, collecting an option premium of USD 30 per contract. At the time of initiating this strategy, PLTR was trading at USD 22.08. The decision to enter this position was influenced by the following information:

- Palantir became eligible for S&P 500 inclusion following its Q3 2023 earnings report.

- Although the company had not yet been selected for the index, the upcoming cycle presented a potential opportunity.

- Regardless of the S&P 500 inclusion, the stock was still considered a buy.

Initial Market Conditions and Expectations

When the contracts were opened, the market price of PLTR stood at USD 22.08. The expectation was that the stock price would remain stable or rise, leveraging the optimism around potential S&P 500 inclusion and the overall positive sentiment towards the stock. The vertical put spread strategy was chosen to capitalize on this expectation by profiting from the premium collected, assuming that PLTR would remain above the USD 21 strike price by the option's maturity date.

Market Movements and Current Position

At the end of the trading session, the market price of PLTR had decreased to USD 21.68. Correspondingly, the market price of the vertical put option increased to USD 39 per contract, reflecting a higher perceived risk of PLTR approaching the lower strike price of USD 20.

Analysis of the Option Strategy

1. Market Reaction: 

The slight decline in PLTR's price to USD 21.68 suggests a cautious market sentiment, possibly due to uncertainty about the S&P 500 inclusion or broader market conditions affecting tech stocks.

2. Option Valuation: 

The increase in the put option's market price to USD 39 per contract indicates that the market now sees a higher probability of PLTR's price falling further, increasing the potential liability of the sold put.

3. Premium Collected: 

The initial premium collected was USD 30 per contract, totaling USD 60 for the two contracts. However, the current valuation of USD 39 per contract implies a paper loss if I were to close the position now.

4. Risk and Reward: 

The maximum loss potential for this strategy is limited to the difference between the strike prices (USD 1 per share) minus the premium collected, which is USD 0.70 per share, given that the position consists of 100 shares per contract. This means the maximum loss would be USD 140 minus the premium collected (USD 60), resulting in a net maximum loss of USD 80.

Reflection and Insights

- Strategic Timing: The timing of the strategy was based on a potential catalyst (S&P 500 inclusion). While the catalyst has not yet materialized, maintaining a close watch on upcoming announcements is crucial.

- Market Sentiment: Despite the slight decline in PLTR's price, the stock remains above the strike price of USD 21, aligning with the initial bullish outlook. However, the market's increased valuation of the put options indicates heightened caution.

- Decision Making: Depending on future movements and news, adjusting the position may be warranted. If PLTR shows signs of further decline, considering a roll-over to a later date or a different strategy might mitigate potential losses.

Conclusion

While the initial outlook for the PLTR vertical put option strategy was positive, the current market conditions have introduced a higher level of risk than anticipated. The increased value of the put options reflects market apprehensions. Monitoring PLTR closely and staying informed about the potential S&P 500 inclusion and other market-moving news will be essential in managing this position effectively. The strategy remains fundamentally sound, but flexibility and readiness to adapt to market conditions will be key to optimizing the outcome.

$PLTR VERTICAL 240719 PUT 20.0/PUT 21.0$