Palantir Technology (NYSE:PLTR) stock dropped sharply following disappointing earnings on Nov. 9 and got stuck in a sideways consolidation pattern.
The old trading adage “never sell a dull market” more than applies to Palantir. Time to take a guardedly bullish stance as 2022 begins.
Certainly the analysts are still somewhat bullish on PLTR stock. The eight analysts who provided stock ratings on Tipranks have a $23.14 price target. This equates to about 25% upside. The lowest target is $18 with the highest being $31.
InvestorPlace contributor Chris Markoch noted in his Dec. 7 article that both Nic Chahine and Mark Hake of InvestorPlace had bullish views on PLTR stock. Chahine pointed out in that piece that Palantir had been a buy every time it dipped below $20 in the past. Hake has a price target of $38.81 for the shares.
Another fellow InvestorPlace contributor, Tezcan Gecgil, is also a PLTR stock bull. Gecgil recommended selling a cash-secured Jan $22 put option for $1.55 in a Nov. 18 article. Selling the Jan $22 put sets up the seller of the option to be a buyer of PLTR stock at $20.45 come Jan. 21 expiration, assuming PLTR stock price is below $22 at that time.
The technical picture is improving slowly but surely for PLTR stock. The nine-day relative strength index has turned higher after reaching deeply oversold readings. Moving average convergence divergence (MACD) recently generated a fresh new buy signal as it got back into positive territory.
Momentum is improving as well. Bollinger Percent B has also climbed higher after printing negative.
More importantly, shares held the major support area at $17.50 and are now look poised to break back above the 20-day moving average at $18.77.
I didn’t always have a near-term bullish outlook for Palantir. My previous analysis on PLTR stock from Nov. 12 had a decidedly more bearish tone. I recommended selling an out-of-the-money December call $27/$29 spread with the stock trading around the $23 area. Implied volatility was also much higher at the time near the 50th percentile.
Now that PLTR stock has dropped over 15% and implied volatility has fallen sharply, my opinion has changed. Price does matter.
Implied volatility is currently at only the 10th percentile, so option prices have become comparatively much cheaper. This favors option buying strategies when constructing trades. So, to position for an eventual pop in PLTR stock a defined risk call calendar spread makes probabilistic sense.
How To Trade PLTR Stock Now
Buy PLTR May $20 calls and sell PLTR Jan $20 calls for a 65-cent net debit.
Each spread costs $65 which is the maximum risk. Ideally PLTR stock closes near $20 at January expiration to realize the maximum gain. The trade structure also allows additional selling of February, March and April calls against the longer term May calls to further reduce the initial cost and lower the risk.
In addition, the trade structure is long volatility. This means that a rise in implied volatility from these low levels will be beneficial to the trade.
On the date of publication, Tim Biggam 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.
Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. Tim has appeared on PBS and the Nightly Business report, while maintaining weekly appearance on Bloomberg TV and CBOE-TV to discuss everything from volatility to LEAPs. Tim has also been invited for reoccurring appearances on CNBC’s Volatility Playbook.