Palantir Stock Offers 2 Breakout Trades

Investors cheered the latest earnings numbers from Palantir (NYSE:PLTR) earlier this month, but the newly minted public company has since seen its share price languish. Of course, choppy sideways movement isn’t new for PLTR stock. For the lion’s share of 2021, it’s been stuck in a range.

A close-up shot of a hand on a screen with the Palantir (PLTR) logo.
Source: Ascannio / Shutterstock.com

Cash flow traders flinging short options strategies are faring fine, but directional traders have to be aggravated by the failure to launch.

Even a seemingly stellar quarterly report wasn’t enough to spark a new uptrend. In fairness to Palantir, however, we’re only two weeks removed from the event. And while prices haven’t soared, they haven’t exactly sunk either.

One silver lining to the recent spate of neutrality is how easy it is to build trades around support and resistance. We’ll dig into that momentarily. But first, let’s take a brief look at the earnings numbers.

Palantir’s Earnings Dazzle

For the second quarter, the Colorado-based data analytics company reported a 49% jump in revenue, far surpassing the Street’s expectations. Total sales came in at $376 million versus $352.3 million expected. That translated into adjusted earnings per share of 4%, which matched forecasts. Looking forward, the company hiked its full-year free cash flow forecast from $150 million to over $300 million.

What’s more important to me as a technician is the stock’s response. After the report, prices closed up 11%, with trading volume ballooning past 200 million shares on the session. Those hoping this was the beginning of a new uptrend have since been disappointed. PLTR hasn’t budged an inch in two weeks.

Still, the initial push did carry prices north of the 50-day moving average where they remain today.

Palantir (PLTR) stock chart with neutral range
Source: The thinkorswim® platform from TD Ameritrade

Sellers have set up shop near $25.50, and buyers remain steadfast at $23.75. For a stock that boasts an average true range of $1.27, this is an extremely narrow range and speaks to the sticky stalemate prices find themselves in. Given the positive fundamentals revealed by this month’s report and the positive sentiment surrounding it, playing for a support break seems foolish.

Instead, I like positioning for an eventual push higher with long-leaning options strategies. If we can take out $25.50, PLTR stock has a straight shot to the next resistance pivot at $27.50.

2 PLTR Stock Options Trades

Given the low share price of Palantir, simple single-leg options trades should work. In situations like this, I find little value in building complicated options spreads. Instead, long calls and short puts offer two smart choices to satisfy directional and cash flow-oriented traders. Let’s take a look at each.

Long Call: There’s nothing more aggressive than snatching up calls, so PLTR must take out $25.50 resistance before pulling the trigger. We need confirmation that the next leg has begun. I like buying the Oct $25 call for around $1.60. The risk is limited to your initial cost but can be reduced by exiting if prices drop below the 20-day moving average at $23.45. The reward is unlimited.

Short Put: If you aren’t bullish enough to purchase calls, then short puts are the way to go. They profit from time decay and will payout as long as PLTR doesn’t fall too far over the coming month. For example, sell the Oct $21 put for 50 cents. The reward is capped at your initial premium and will be yours to keep if prices sit above $21 at expiration.

By selling the put, you are obligated to buy 100 shares of stock at $21 if the put sits in the money at expiration. You can sidestep assignment by exiting the put before expiration, though.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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