Cash In on Palantir's Fall From Grace

After a giant run to the north,defence contractor and AI stock Palantir (PLTR) finally began retracing into support levels earlier this week, before its next run to the upside.

Though the chart is quite bullish, the new political administration announced defense budget cuts that traders assumed would affect the stock. Traders are both shorting the stock and are positioned to take profits into support near $100 and below. 

That’s the perfect setup for a long put butterfly trade on PLTR.

PLTR’s relative resistance zone sits right around $125 as I’m writing this. The relative support is near $65. 

Given that, the way to structure the long put butterfly for further downside is this:

• Buy to open 1 PLTR 21 Mar 100 puts 
• Sell to open 2 PLTR 21 Mar 80 puts 
• Buy to open 1 PLTR 21 Mar 60 puts 

This long put butterfly holds a current debit of $2.10. The total risk is the debit you paid – $210.00.

The total potential profit is $2,000 (the distance between strikes times 100) and the cost of the debit ($2,000 – $210= $1,790). 

It is extremely rare to collect all this premium. Instead, I like to consider 200%-350% profit of the investment 

The strategy result provides only two choices to exit the trade:

• To sell the butterfly that is performing at your target parameters – particularly once the middle strike is tested 
• To sell the butterfly right if the chart does nothing, or once your threshold for loss is hit. Mine is typically 65-70% with these positions.  

Consider exiting the trade with 10 days or more into expiration as the closer the options get to expiration, the more volatile the options become.

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