Bullish Investors Pile Into Palantir Options

Investors are piling into call options on Palantir Technologies, Inc. this week, expecting the stock to head upward:

“Palantir saw above-average call activity [Monday], about 90,000 contracts more than it trades on average, and the most action was seen in the 24-, 25- and 26-strike calls that expire this coming Friday. The 24-strike calls, for example, traded about 45,000 contracts. Those were trading for just under 70 cents,” Optimize Advisors CIO Michael Khouw said Monday on CNBC’s “Fast Money.”

Those 24-strike calls break even at an underlying stock price of $24.70, or about 6% higher from where Palantir closed Monday’s session. More bullish traders who took a chance on the 26-strike calls would need to see a jump of more than 12% by Friday’s close to break even.

Some may be reacting to a recent push from Palantir into the life sciences, diversifying from its bread-and-butter of government clients:

In a continued push to expand its business beyond the sometimes-controversial federal defense and intelligence contracts it’s best-known for, $42 billion big data company Palantir is making a new push into industries including life sciences and manufacturing.

That push comes in the form of new capabilities for Palantir Foundry, its product for the private sector, which will be showcased at a company event it calls Double Click on Wednesday.

However, the stock is richly valued and its core government contracting business is growing slowly. Commercial sales growth is also weak, at a mere 4% in Q4 2020. And 20% of that slow growing commercial business is a single customer. Indeed, a small number of clients drive Palantir’s revenue, exposing the company to a big risk if several were to leave at once. The concentrated and slow growing customer base, along with a hefty price, will keep me away from this stock.

For more on Palantir, check out these posts:

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Photo: Palantir co-founder Peter Thiel. “Peter Thiel” by jdlasica is licensed under CC BY 2.0


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