Palantir: the Over-Valuated "NATO-Concept" Stock set to Release Q3 Earnings, Options Strategy
Following a "super-week" with earnings release of Mega-Cap stocks and FOMC meeting, the schedule of this week is the same filled with famous and actively traded stocks. This article highlights two of the most watched ones: $Palantir (PLTR.US)$ and $Robinhood (HOOD.US)$ .
Palantir will report its earnings after the market closes on November 3, while Robinhood will report on November 5 (Wednesday) after the market closes. The options market for both stocks is showing high implied volatility, making it highly favorable for option sellers.
Palantir
There is a significant divergence between Palantir's current valuation and its fundamentals. Its price-to-sales ratio has exceeded 80x, which is unconventional. However, considering the unique nature of its business and its status as essentially the only "NATO concept" stock globally, the market has tolerated this overvaluation.
Ahead of the earnings report, major institutions are notably divided. Among the 16 covering analysts, 7 give a "Buy" rating, 7 a "Hold," and 2 a "Sell."
Regarding the target prices set by these institutions, the highest is $215, the lowest is only $45, with an average around $170. Such a distribution of target prices implies that if the upcoming earnings report fails to provide strong evidence supporting continued high growth, the stock price could potentially decline.
Based on this outlook, options investors have two strategic choices:
For Aggressive Investors: Long Put
Investors betting on a stock price drop after the earnings release can consider using long puts. To maintain some safety margin, the expiration can be set for 1-2 months, with the strike price set at-the-money (equal to the current price) or slightly out-of-the-money.
Long puts carry high risk; if the stock price surges sharply after earnings, the options could incur significant losses.
For Conservative Investors: Short Put
For investors anticipating a pullback but unwilling to completely give up potential upside, a small short put position can be used. If the stock price corrects after earnings, additional short puts can be added at the new, stable price level.
It's important to note that if deploying short puts before earnings, the strike price should be set significantly lower, at an ideal price where one is willing to buy the stock. A timeframe of 4-6 months is advisable.
Robinhood
Robinhood's stock behavior is similar to Palantir's, having experienced a substantial rally. However, Robinhood's valuation is not as extremely overvalued as Palantir's. Furthermore, the proportion of "Buy" ratings from analysts is higher, at 77.8%.
The current target prices have a high of $170, a low of $68, and an average of $142, which is relatively close to the latest closing price. These factors indicate that bearish sentiment towards Robinhood is not as strong as towards Palantir. Therefore, using naked long puts to forcefully bet on a post-earnings decline is not advisable.
Options Strategy: Short Put
Investors enthusiastic about pre-earnings positioning can use a small short put strategy to capture potential further upside after the report. If the stock price falls post-earnings, they can add to the position after it stabilizes.
Similarly, it's crucial to note that the strike price for pre-earnings short puts should not be too close to the current price, leaving ample safety margin, or investors could just set at a price where one is willing to acquire the shares. A term of 4-6 months is practical.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Caleb Kien : it will be beated estimations. $Palantir (PLTR.US)$
104068330 : too pricey
AD HING : Optimistic
RIPPER : i sold deep OTM puts and deep OTM calls for PLTR earnings…….no reason it shouldnt pay bother directions
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