Palantir Technologies stock had an impressive bounce Monday, rising 5.2%. It also has showed impressive accumulation throughout the current market drawdown.
The company has formed a significant partnership with Databricks, enhancing its position in the artificial intelligence and data analytics sectors. Investors interested in taking some bullish exposure can do so with much lower risk via a bull call spread.
A bull call spread is created through buying a call and then selling a further out-of-the-money call. Selling the further out-of-the-money call reduces the cost of the trade but also limits the upside.
A July 85-strike call option is trading around $12.90, and the July 90 call is around $10.80.
Buying the 85 call and selling the 90 call creates a bull call spread. The trade cost would be $210, or the difference in the option prices multiplied by 100. Then, the maximum potential profit would be $290, or the difference in strike prices, multiplied by 100, less the premium paid.
How Much Could Be Lost
A bull call spread is a risk defined strategy, so if Palantir stock closes below 85 on July 18, the most the trade could lose is the roughly $210 premium paid.
Potential gains are also capped above 90, so no matter how high Palantir stock might go, the most the trade could profit is $290.
The breakeven price for the trade is equal to the long call strike plus the premium, which in this case would equal 87.10.
In terms of trade management, if the stock dropped below 75, or if the spread value dropped to $105 from $210, I would consider closing early for a loss.
How Palantir Stock Ranks
According to IBD Stock Checkup from Investor's Business Daily, Palantir stock ranks No. 1 in its group and has a best-possible Composite Rating of 99, an EPS Rating of 98 and a Relative Strength Rating of 99.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
