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Having looked at my performance based on information from a competing platform, I’m generally doing well. At time of writing, among 39,464 experts, I rank at number 151. Further, my success rate clocks in at 62% with an average return of 21.3%. That’s not bad until you realize that the S&P 500 is returning 33.54% over the past 52 weeks.
Very few people are consistently outperforming the market. It’s at that point that I realized that rather than trying to beat the market, I should use its weight against it to extract compelling opportunities. Think of it like judo but in the context of Wall Street.
At a practical level, trying to find the next big thing is often a fool’s errand. Sure, the big homerun is sexy and all but they happen infrequently. Over a long season, it’s better to focus on putting players on base. Eventually, if you put too many baserunners on the field, some of them will be forced to return home. That’s how you win ballgames.
With that, let’s turn to Barchart Premier and specifically its Options Screener. On the left-hand menu bar, we can select bull call spreads. This bullish strategy can be very powerful thanks to the simultaneous buying and selling of call options, with the short sale helping to partially offset the debit paid for the long call. Essentially, we’ll be looking for high-probability transactions with decent payout.
The beauty of Barchart is that with its Options Screener, you can filter for certain criteria. In this case, I want to search for high likelihood of success meaning an ITM (in-the-money) Probability of greater than 50%. Also, I’m looking for short-term trades so days to expiration from zero to 30.
A Popular AI Trade Stands Out
Running this filter, we come across hundreds (if not thousands) of viable ideas. However, I’m only interested in opportunities that minimize risk while maximizing reward. Further, it’s important to realize that risk is a multivariate headwind comprising positional and probabilistic risk. I use my own methodology called risk-adjusted capital expenditure (RACE) to better inform my decisions. Of course, you are free to approach your trading how you please.
Nevertheless, with the RACE approach, a few compelling ideas stood out. One of them is the ever-popular Palantir Technologies (PLTR). A big data analytics specialist, Palantir’s trade — buying the 70/71 call spread for the Dec. 13 expiration date — seems enticing, if not extremely so. Here, the debit paid comes out to $65 for a maximum profit of $35 (or a payout of 53.85%).
At first glance, that might seem disappointing. Keep in mind, though, that we’re talking about a trade that expires in a little more than one week. Also, the breakeven price sits at $70.65 or 1.7% down. That gives you peace of mind. Also, the short call strike lands at $71. That means PLTR stock doesn’t need to move higher. It just needs to stay put and you’ll collect your maximum reward.
Best of all, Barchart rates the probability of profit at 57.7%. I believe that this figure is conservative, a proprietary calculation based on the interplay of delta and theta, among other key factors. After all, technical momentum indicates that PLTR stock should continue marching higher.
PLTR Stock is a Math Play
Even taking aside the technical argument, I’m attracted to PLTR stock as a short-term options trade because it’s a math play. Using data from Barchart Premier — because even Yahoo Finance now charges for its historical data downloads — we know that on a week-to-week basis, PLTR stock has a win ratio of 60.09% (with winning defined as a weekly return greater than a 1% loss).
However, when we look at PLTR’s performance on a year-to-date basis, this win ratio jumps to 69.39%. If we defined winning as anything above 0%, the win ratio drops rather conspicuously to 63.3%. In my opinion, it behooves the speculator to lower the options payout and grab the extra 6.09% of win probabilities.
Finally, let’s appreciate what the market is gifting us with. As a rule of thumb, if you want a high-probability trade (reduced probabilistic risk), you have to pay up the nose for it by putting more money in danger (positional risk). In my view, with the PLTR 70/71 trade, you’re getting rock-bottom positional risk with a pretty darn high probability (almost 58% by “options math” and realistically closer to 69% in the real world).
My whole point over the past several weeks has been to emphasize that you’re not going to find these ideas unless you have Barchart Premier. With it, you’ll enjoy access to historical data and so much more. It’ll practically pay for itself over the long run, making it a must-have asset in your tool bag.
