Palantir Technologies just had a massive jolt amid news of potential changes in future U.S. government spending on defense and the CEO saying he planned to sell over $1 billion in his holdings of the stock. So, now might be a wonderful time to look at an options trade in Palantir stock that capitalize on volatility.
Palantir stock traded as much as 19.7% for the week after rushing to a new high of 125.41. Weekly volume jumped more than 40% above the stock's 10-week average.
This kind of massive jolt does two things. It shakes out the weak hands but also stages the stock for its next real move. Which direction for Palantir stock? It could be either, as valuations remain high. For this reason, let's take an outlook that has a solid runway for potential positive returns.
Palantir Stock Today
A double butterfly in Palantir stock is ideal for larger anticipated moves into a catalyst such as earnings or a very big news event. This setup combines a long call butterfly and a long put butterfly.
A long call butterfly fuses a long call spread and a short call spread that share the same short strike, or the call option that's sold. A long put butterfly puts together a long put spread and a short put spread that share the same short strike. They are positioned as two separate trades, as seen below.
In the case of the long call butterfly (positioned for upside in the details below), if price action in Palantir stock is outsize, we capture $2,000 less the cost of the call butterfly, currently $105. But this happens only if the price goes to 150.
Here is the setup for Palantir stock:
- Buy to open one PLTR January 2026-expiration call with a 130 strike price.
- Sell to open two PLTR Jan. 2026 150 calls.
- Buy to open one PLTR Jan. 2026 170 call.
The long put butterfly could deliver as much as $2,000 in profit, minus the cost of the butterfly, currently $3.38 ($338 per set of puts), but only if Palantir stock slides to 70.
- Buy to open one PLTR Jan. 2026 90 put.
- Sell to open two PLTR Jan. 2026 70 puts.
- Buy to open one PLTR Jan. 2026 50 put.
Costs And Benefits
The long call butterfly held a debit of $1.05 in recent trading. The long put butterfly held a debit of $3.38. Together, the total risk is the debit you have paid for both butterflies; if you have a definitive bias, you can engage in only one of them.
Notice that because we have time on our hands, we can easily see both sides of these butterflies paying a net profit to us. The trade structure also allows us to exit the underperforming butterfly in Palantir stock without a big haircut on the money invested.
The total highest potential profit is $20 (the distance between strikes) less the cost of the debit incurred by buying both butterflies( 1.05+3.38= 4.43). Therefore, we get $20-$4.43 = $15.47, or $1,547 per set of contracts.
Now, it is extremely rare to collect all this premium. Instead, I like to target a 200%-300% overall profit. But big moves can deliver much higher returns.
Trade Management
Chartwise, the relative resistance zone sits right around 125, but traders are pricing in a wider range, particularly after looking after the recent jolt in prices. The relative areas of price support and trading congestion sit near 70.
We have several choices to exit the trade. One, we can sell both butterflies in Palantir stock when the performing calls or puts move into our target parameters, particularly once the middle strike price gets tested.
Two, we can sell both butterflies right after earnings if the chart does nothing, or once our threshold for loss is hit. Mine is typically 65-70% with these positions.
Finally, we can sell the underperforming butterfly when PLTR recovers or loses relative strength, or keep the performing butterfly into the next areas of noted support or resistance.
If the price action drifts into a range, we could choose to keep both of the butterflies and release the performing one. Then, we can hold the underperforming one to see if it can recover. However, this choice is the toughest and requires a fair level of skill in handling the trade.
Anne-Marie Baiynd is a 25-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." You can find her on X at @AnneMarieTrades
