Two large tranches of Palantir Technologies (PLTR) call options have traded today. Investors could be bullish on PLTR as it is well off recent peaks. I discussed this in a recent Barchart article, May 8, “Palantir Makes Higher FCF Margins and Revenue Forecasts Rise - So, Why is PLTR So Cheap?”
PLTR is down today about 3.4% to $131.35, and is well off its recent May 4 peak of $146.03 and prior to that a peak of $152.62 on April 22. However, it's still over a recent trough of $128.06 on April 10.
Maybe the market intends to test Palantir stock's lows again. This might be seen in today's unusual options action.
For example, the Barchart Unusual Stock Options Activity Report today shows that two call option tranches have traded in high volumes. They expire in 2 days on May 15 with strike prices at $131.00 and $132.00.
The $131.00 call option has traded with over 44x the prior number of calls outstanding, and the $132 tranche has over 18x the prior number.
The buyers of these calls are paying hefty premiums, $2.31 to $1.88, respectively. That could indicate that the initiators of these call options were sellers, likely covered call sellers.
For example, the $131 call option has a $2.31 premium, which represents a 1.76% yield (i.e., $2.31/$131.35) for the next two days. That strike price is already “in-the-money.”
The $132.00 call has a $1.88 premium, which represents a 1.43% yield.
In any case, both buyers and sellers expect to see PLTR move higher.
Higher Price Targets
And why not? I demonstrated in my recent Barchart article that, based on Palantir's strong free cash flow (FCF) and FCF margins, it could be worth over $219 per share, over the next year. That represents upside of 66.7% from today's price.
Moreover, since then, analysts have raised their price targets as well. For example, Yahoo! Finance now reports that the average of 31 analysts is $183.73, up from $181.73 in my Barchart article. Similarly, Barchart nows an average mean survey price target of $192.46, up from $192.00 in my article.
I also discussed shorting out-of-the-money (OTM) puts to take advantage of any PLTR weakness and to set a lower buy-in price target. For example, the $130 strike price put option expiring June 12 now has a $6.60 midpoint premium.
That represents an immediate 5.07% yield to a short-seller (i.e., $6.60/$130.00), and sets a breakeven buy-in point of $130-$6.60, or 123.40. That's 6.0% below today's stock price, which is attractive to value buyers.
The bottom line is that PLTR stock looks cheap to investors today. That can be seen in unusually large call options activity.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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