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What was the unusual options activity for Palantir Technologies (PLTR) on ThursdayPLTR)?
Well, in two words: Crazy busy. It had at least six options with a volume-to-open interest (Vol/OI) ratio higher than 10x. The number of unusually active options for Palantir on Thursday -- defined as a Vol/OI greater than 1.25x -- was a whopping 38, with two in the top 20 and another four in the top 100.
I don’t know if it’s Cathie Wood buying more Palantir stock or the healthy earnings report earlier in May. Either way, investors were hungry for PLTR options Thursday, generating a volume of 1.14 million, nearly 5x its 30-day average.
CEO Alex Karp believes Palantir’s new Artificial Intelligence Platform will be the platform that takes both its military/government and corporate businesses to new heights. If you agree with Karp and Wood about Palantir’s rosy future in AI, here are three unusually active options to bet on PLTR.
A Profitable Palantir Is a Scary Proposition
If there was one thing holding back Palantir’s stock since September, it was the lack of profits. Sure, revenues were growing reasonably, but it wasn’t making money. Everything changed on May 8.
Palantir reported only its second GAAP profit in its history, generating $17 million in the first quarter. The first time was quarter—Palantir’s on a roll.
“We were profitable again this quarter... And we now anticipate that we will remain profitable each quarter through the end of the year,” Karp wrote in Palantir’s letter to shareholders. “The depth of engagement with and demand for our new Artificial Intelligence Platform (AIP) is without precedent.”
Equally impressive, Karp points out, Palantir generated a GAAP operating profit in the first quarter of $4.1 million, the first ever. While that’s an operating margin of 0.8%, you must start somewhere. Both Tesla (TSLA) and Amazon (AMZN) lost boatloads for many years until they didn’t. Where’s Malcolm Gladwell when you need a Tipping Point reference?
I don’t think there’s any question that Palantir is heading in the right direction. However, if Karp is only marginally correct about its AIP opportunities, the profits will come in waves. A profitable Palantir is a scary proposition.
Why Bet on Palantir After Its Big Run?
I don't think there's any question that the stock’s big move in May will have many investors thinking they’ve missed the boat. But, of course, the fear of missing out is never a good reason to buy any stock, let alone one that’s just dipping its toe in Lake Profitability.
As Warren Buffett would say, you’re buying a piece of the company, not some paper. You have no business investing in PLTR if you’re not in it for the long haul. Palantir will take years to play out. There will be highs, like this past quarter, and lows after its shares fell more than 14% when it reported weak Q2 2022 results last August.
It’s a marathon, not a sprint. I wouldn’t be surprised if it took a decade to learn whether Karp was blowing smoke in May 2023 about the company’s potential in AI. Nevertheless, I don’t believe he’s wrong to be enthusiastic about Palantir’s opportunities. They are tremendous.
In its Q1 2023 conference call, Karp's opening comments pointed out that even though he should be talking about its profitability, he wanted to go big picture, discussing what lies ahead for the company.
“[W]hat's most exciting about Palantir is we have our ability to launch products that are literally the only products on the market and that will, in fact, change your life and will determine who succeeds and who fails across enterprise, both government and commercial,” Karp stated. “The large language model revolution is one that will raise ships and sink ships.”
That last line has me thinking about Bill Murray’s line in Ghostbusters: “Human sacrifice! Dogs and cats living together! Mass hysteria!” But I digress.
Palantir is delivering on its promise. You can’t put a price on that, so you haven’t missed the party. Unless things go wrong at Palantir HQ (which is possible), the party’s barely gotten started.
The 3 Options to Bet on PLTR
Of the two put options in the top 20 -- May 26 $11.50 and May 26 $10.50 -- I would have sold the former despite the fact your net price paid would have been $11.12, 72 cents higher. With only seven days to expiration, your goal isn’t to generate income but to buy the stock at a decent price.
As I look at Friday trading, the bid for the $11.50 strike is $0.47, while the $10.50 strike is $0.14. With a week to go, the odds of its share price falling $1.39 from its current price of $11.89 seem remote, given its momentum.
The third option that looks inviting is the May 26 $12 call. It had an ask price yesterday of $0.44 for a net price of $12.44. Today's ask is 11 cents higher, bringing the net price to $12.55, 66 cents higher than where it’s currently trading. The delta is 0.49221, so the share price has to rise by $1.12 to double your money on the call. Either way, whether you exercise your right or unload the option, you're ahead.
Palantir’s options action has cooled today. Its volume is 371,191 approaching midday. That’s more than its 30-day average but down from yesterday.
In my books, Palantir is a long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
