DailyPlay – Opening Trade (PLTR) – May 1, 2024

PLTR Bearish Opening Trade Signal

Investment Rationale

Investors have grappled with how to value an AI-focused company based on its future revenue potential against its current spend to develop the product. We saw the downside to high Capex spending without a clear path to revenue growth in META. And while PLTR is not a direct parallel, it is a AI-focused company that trades at a very high valuation. These types of valuations continue to be at risk as we grapple with the notion of potentially even higher rates from the Fed.  

Technical Analysis

After gapping higher above $21, PLTR has failed to see any follow through on the initial momentum. Moreover, momentum has now turned negative and testing its $21 level as support alongside a series of lower lows and lower highs. This suggests that we could break below the $21 support and target the $17.70 gap level underneath. 

PLTR – Daily

Fundamental Analysis

Since PLTR barely turns a profit, using EV to Sales is a better valuation to measure PLTR, which trades at over 21x. This is extremely high given that analysts only expect revenue to grow by a modest 13% over the next few years. This puts PLTR in the same valuations as the fastest-growing tech companies with growth numbers that are half as fast. There is a substantial risk that companies with such rich valuations will get cut as interest rates potentially rise even further. 

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 13 June 21st $22/$18 Put Vertical Spreads @ $1.56 Debit per Contract.

Total Risk: This trade has a max risk of $2,028 (13 Contracts x $156) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $156 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is pulling back to lower levels.

1M/6M Trends: Bearish/Neutral

Relative Strength: 9/10

OptionsPlay Score: 113

Stop Loss: @ $0.78 Credit. (50% loss of premium paid)

View PLTR Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Tuesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View PLTR Trade