Palantir stock (PLTR) has been one of the best performing stocks in 2024, but cracks may be starting to appear in this historic rally.
PLTR stock is up 360% year-to-date and 213% in the last six-months.
However, options flow is telling a different story with bearish option flow building in the last week.
Let's break down the unusual options flow and what it might signal about the stock's potential direction.
Options Volume and Flow Analysis
Friday’s options activity in Palantir stood out from typical trading patterns. The unusual volume and flow indicate potential bearish sentiment among sophisticated options traders.
Specifically, we saw:
- Heavy selling in out-of-the-money call options
- Bearish overall Net Trade Sentiment
- Clustering at the $80-85 strikes suggest traders see this as a strong resistance level
Trades of interest are highlighted below in yellow.
Key Observations:
Overall we had $1.9m in bullish trades and $5.2m in bearish trades for an overall Net Trade Sentiment of -$3.25m.
This could indicate:
- Despite bullish headlines on the stock, the overall positioning is defensive
- The negative delta imbalance suggests institutional traders might be:
- Hedging long stock positions
- Anticipating a pullback after recent gains
- Using complex strategies where the calls we see are part of spread trades
- The divergence between the large bullish trades and overall bearish sentiment could indicate a period of increased volatility ahead.
Looking at the Net Trade Sentiment and Delta Imbalance over the last week shows an interesting picture:
DECEMBER 23RD:
DECEMBER 24TH:
DECEMBER 26TH:
DECEMBER 27TH:
Technical Picture
While to overall bullish trend remains strong, there is a concerning technical signal developing – RSI bearish divergence.
Price has been making higher highs through December while the RSI shows lower highs (64.25 vs previous peaks over 70), forming a bearish divergence pattern. This suggests weakening momentum even as price climbs higher.
Specifically:
- Early December RSI peak was around 75-80
- Mid-December RSI peak was around 70-75
- Current RSI reading is 64.25 despite price being near all-time highs
This RSI divergence, combined with the earlier options flow analysis showing net bearish sentiment (-$3.2M) and negative delta imbalance (-90,850), paints a picture of potential exhaustion in the current uptrend.
This technical setup suggests traders should be cautious in the short term while maintaining a bullish bias for the longer-term trend.
Trading Implications
The combination of the bearish options flow sentiment (-$3.2M) and RSI divergence presents a compelling case for PLTR shareholders to consider risk management strategies.
While the stock remains in a strong uptrend, trading above all major moving averages, these warning signs suggest potential near-term weakness or consolidation.
Long-term holders sitting on substantial gains (with the stock up over 200% from August lows) might consider implementing protective strategies.
Shareholders might consider hedging strategies such as purchasing protective puts or constructing collar positions to lock in gains while maintaining upside exposure.
The negative Net Trade Sentiment in the options flow suggests institutional traders are already implementing such hedging strategies, and individual investors would be prudent to follow suit.
Rather than fully exiting profitable positions, a measured approach to risk reduction through options hedging could help protect gains while maintaining exposure to further upside potential.
Company Details
The Barchart Technical Opinion rating is a 100% Buy with a Strengthening short term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
Palantir rates as a Strong Buy according to 2 analysts with 8 Hold ratings, 2 Moderate Sell ratings and 5 Strong Sell ratings.
Palantir Technologies Inc. builds and deploys software platforms for the intelligence community principally in the United States. Palantir Technologies Inc. is based in Denver, Colorado.
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.
