Reflecting on my PLTR options trades. What I did right. What I did wrong. What I am going to do next.
PLTR is the symbol for Palantir Technologies. It provides organizations with solutions to manage large disparate data sets in an attempt to gain insight and drive operational outcomes.
I am attracted to PLTR because it deals with big data, especially unstructured data and has done so with an innovative approach. I deal with some data in my professional work and know that current solutions are wanting.
Not knowing how to look at the health of a company, albeit one with a smart idea, I jumped straight in.
PLTR Options: Selling Puts
I sold 8 put options between April 2021 to Oct 2021 for a total profit of $725.25. I was assigned 100 shares and I paid $2,500 for it.
- 100 shares
- Total cost: $2,500 – $725.25 = $1,774.75
- Cost per share: $17.75
My next 3 put options incurred losses amounting to (-$976.36). When the share price dropped, I wasn’t prepared to purchase more PLTR shares so I decided to roll the options.
I sold another 3 put options between Dec 2021 to Jan 2022. I made a loss of $857.57 and was assigned a second time and paid $1,850 for 100 shares.
My next put option in Dec 2021 was assigned. I collected $118.79 in premium and paid $1,850 for 100 shares. Actual cost: $1,850 + $857.57 = $2,707.57
- 200 shares
- Total cost of shares: $1,774.75 + $2,707.57= $4,482.32
- Cost per share: $22.41
I sold one final put option on 17 Feb 2022 and collected a premium of $71.93.
- 200 shares
- Total cost of shares: $4,482.32 – $71.93 = $4,410.39
- Cost per share: $22.05
Lesson Learnt: do not sell put options if I am not prepared to purchase the shares.
Covered Call Options
I sold 3 call options from Feb 2022 to Mar 2022 made a small loss of $6.40. The premiums were very low and I realized I have absolutely no idea what I am doing.
Time to improve my knowledge.
Learning to Evaluate PLTR
At the beginning of 2022, I attended a course called Options Millionaire Intensive bootcamp (affiliate link). OMI is a 3-day live bootcamp (virtual when I attended). I learnt some interesting investing concepts and strategies. One of them is a checklist for evaluating whether a company is good.
I know this is not comprehensive analysis but I think it is a good place to start for beginner investors. Baby steps.
- Operating cashflow (OCF) of a good company should be consistently positive. A bonus if it is growing.
- Net profit margin should be positive. 10% and more to be considered good.
- Interest coverage ratio should be positive. The larger the number the better. Nil is also good. It means the company has no loans.
- The current year Price/Earning ratio (PE) should be lower than the 5-yr PE
- The current year Earning Per Share (EPS) should be higher than the 5-yr EPS
- The Value line should be higher than the current share price. This means that the company shares could be trading at a discount.
Applying the OMI Checklist to PLTR (2022)
- PLTR operating cashflow was negative from 2018 to 2020. It turned positive in 2021 at $334 million. Time will tell if OCF will continue to grow.
- PLTR net margin percentage is negative over the last 4 years but the value is shrinking. Again, time will tell if the percentage will shrink further and turn positive soon.
- Interest coverage ratio is (-133.20). That is a big red flag.
- PE ratio for 2021 was 455.25. 5-yr PE data is not available. PLTR is very expensive.
- The TTM Earning per share is (-0.25).
- The Value line cannot be calculated without the 5-yr PE data and a negative EPS.
PLTR failed all the OMI checklist items. Some analysts forecast a low of $9.00. Morningstar Analysis set the fair value at $31.00. I hope Morningstar is right.
June 2022
The share price has dropped below $9.00 as forecasted by the analysts. Morningstar has also lowered the fair value to $27 due to a review of PLTR’s longer-term expectations for margin expansion although they believe that,
Palantir’s software is mission-critical to some of the world’s largest institutions, and the company is making significant strides landing new commercial clients of all sizes with prebuilt modules and consumption-based pricing alleviating up-front cost concerns.
I also think the company has good potential and should do well in the future. I have not been very successful at trading options with PLTR. I will just hold on to the shares I have and wait for the market to like the company again.
I may sell LEAP puts instead. I will have to check whether the implied volatility is under 50% which indicates whether the options are reasonably priced.
The data I used for evaluation are sourced from Firstrade.com and Moomoo (affiliate link). I have trading accounts with them and it includes access to relevant company and market information.
