An options trade to benefit from a potential turnaround in beaten-down Palantir after earnings

Palantir Technologies, the richly valued AI darling, hasn’t been immune from the persistent waves of selling that have drowned software stocks.

Last week, the stock broke below its 200-day moving average for the first time since August 5, 2024, and ended January with its lowest close since July. Needless to say, the defense data and AI software company has rarely traded worse heading into an earnings report, with its Q4 results due out after the close on Monday.

“It appears that expectations coming into this earnings print are lower than they have been in the last year or so,” Dean Curnutt, CEO of Macro Risk Advisors, wrote. “And this potentially sets the shares up for post-earnings volatility and directional follow-through to the upside.”

His recommendation:

• Buy call options with a strike price of $162.50 that expire on Friday;

• Sell the same amount of calls with a strike price of $182.50 that expire on Friday.

As of the time of recommendation, the potential payout on this trade was roughly 10.5 to 1.

Curnutt noted that when Palantir has been this beaten-down ahead of earnings, shares have usually performed very well thereafter.

“As of right now, PLTR T-3 move is -11%,” he concluded. “If you look at the last 8 quarters in the attached table, the only 2 times where the T-3 was negative (8/6/24 and 11/5/24), the T+5 moves were +22% and +45% respectively.”