3 Ways to Trade Palantir and Its Red-Hot Momentum

Palantir (NYSE:PLTR) stock is taking the momentum world by storm. Credit for its increasing popularity goes to three key characteristics – its status as a fresh IPO stock, the cheap price tag, and big-league volatility.

Palantir Technologies (PLTR) headquarters
Source: Sundry Photography / Shutterstock.com

The Denver-based builder of software platforms popped to a record high of $18.75 on Tuesday. PLTR stock delivered a double-digit gain of 13%.

Today, we’re taking a closer look at the constructive technicals and price mechanics that make Palantir shares a prime candidate for selling options. The nice thing about analyzing a stock that only came public six weeks ago is that we can keep the commentary simple and succinct.

Some stocks take months to find their footing following their public debut. They bob and weave for weeks on end before finally finding enough buyers to break it out of the post-IPO range. But once that uptrend sparks, it can be a thing of beauty.

For its part, Palantir only needed to base for a single month before taking flight. The speed of the breakout was no doubt accelerated by the company’s fortunate timing. Its stock listing arrived just in time for the shares to get buoyed up with risk assets after the presidential election.

PLTR Stock Chart

Palantir (PLTR) stock with powerful momentum
Source: The thinkorswim® platform from TD Ameritrade

Had it gone public in March, I assure you we wouldn’t be having the same bullish-laced conversation.

Looking back, the Nov. 5 run-up was the tell. On that day, PLTR stock eclipsed the IPO day’s high of $11.42 and officially kick-started the trend. Fast-forward two weeks and the stock has now doubled off the lows amid a huge influx of buyers. No doubt, the lower price tag makes it a hot commodity among the retail crowd, but the high volume confirms there’s a great deal of institutional accumulation occurring as well.

We’ve now had enough time pass for the 20-day moving average to form. It is heading higher in support of the nascent uptrend and should act as a potential support zone on a retracement to $12.35. That’s if we even retreat that far. We’ve seen buyers swarm after one or two down sessions, so I suspect pullbacks will remain shallow.

Some will argue prices are getting extended. There’s some truth to the overbought signals, but before Tuesday’s ramp, PLTR had chopped sideways for six trading sessions, so it’s not as if we’re completely in orbit. And besides, when the momentum crowd gets a hold of a ticker symbol, things tend to run far longer than expected. Just look at Nio (NYSE:NIO), for example.

How to Trade Palantir Now

I have multiple ideas for capitalizing on the emerging strength, particularly if you’re hesitant to chase. Here are three to consider.

The Momentum Trade: If you’re looking to game a multi-day swing but don’t want to get hammered if we suddenly pull back, then buy PLTR with a stop under Tuesday’s low ($16.18). You’ll participate fully in any further upside but get stopped out relatively quickly if the momentum finally wanes.

Scale In: Because PLTR has already run significantly from its $11.50 breakout point, how about buying a partial position such as one-half or one-third of your normal size? Then, if it retraces over the coming days, you’re only losing on a small position and can add more shares at better prices. Alternatively, if PLTR runs higher from here, then at least you have some exposure.

Sell Puts: The elevated volatility translates into pricey option premiums. We can use that to our advantage by selling downside puts. If PLTR continues pushing higher, then you get to pocket what you were paid upfront. On the other hand, if prices finally come back to earth, then you’ll be on the hook for buying 100 shares per contract sold. But you’ll be buying at a fair discount to the current price, so there is a silver lining.

The Trade: Sell the Dec $14 put for 70 cents.

On the date of publication, Tyler Craig held a LONG position in PLTR.

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