Palantir has been on a tear this year. Two numbers signal investors should protect their gains
Palantir Technologies has been one of this year’s great momentum stories, gaining more than 65% since its recent low on June 25, and it added to the legend Friday by rising about 3.5% to trade above $180. But two other numbers, taken together, suggest this is the moment for holders of the stock, and for opportunistic traders, to think seriously about downside protection. The first number says the stock price is stretched. The second says protecting yourself has rarely been cheaper. Start with the stretch. Palantir’s 14-day relative strength index (RSI), the classic momentum indicator and the technical signal I pay the most attention to, was at 69.50 at midday on Friday. Traders generally consider a reading above 70 to be overbought, so Palantir is knocking on that door. RSI is not a timing tool, strong stocks can stay overbought for weeks, but it tells you how much good news is already embedded in the share price. After the run Palantir has had, there is clearly a lot of good news embedded in the price. Now, the second number is the more remarkable one. PutDex, an index we publish that tracks the normalized price of a 30-day Palantir put option that is one standard deviation below the stock price, is sitting in the bottom decile of its 52-week range. In plain English, that means the puts that institutions typically buy when they want insurance against a meaningful decline are trading near the cheapest levels of the past 52 weeks, even as the stock trades near its highest level of the year. PLTR YTD mountain PLTR in 2026 That combination is unusual. Normally, when a stock rips higher, put buyers show up to protect their gains and the price of downside insurance firms up. The opposite is happening in Palantir right now. Traders are so focused on chasing further upside that comparable out-of-the-money call options are actually more expensive than the equivalent puts. That’s a relationship you see only in the frothiest equities. There’s very little fear among PLTR longs and that’s precisely when insurance is worth buying. Here’s what the trade looks like in practice. With the stock at $180.85 at midday Friday, the Sept. 25 expiration $170 put, with about five weeks to expiration, could be bought for $5.90 or $590 per contract. That’s the maximum risk. The position is profitable with PLTR below $164.10 at expiration. That is roughly 9.2% under the current price but the trade gains dollar-for-dollar as the stock falls below that level. For a stock that regularly moves 5% in a day around headlines, that’s not far-fetched. Traders who want to lower the cost of the trade can use a put spread. Buying that same Sept. 25 $170 put and selling the $155 put against it cuts the outlay to roughly $3.60, or $360 per contract. The short strike caps the maximum profit at $11.40 — the $15 difference between the strikes minus the net premium paid. The spread generates that maximum profit with the shares below $155 at option expiration. So the put spread is risking $3.60 to make $11.40. This is not a speculation that Palantir shares collapse. It is a trade based on the idea that a stock priced for perfection, with momentum near overbought territory, is vulnerable to an ordinary pullback and that the options market, distracted by the upside chase, is mispricing that possibility. Long stockholders can treat the put as cheap insurance on gains. Traders can treat the spread as a defined-risk way to fade the euphoria. Either way, when the market offers cheap insurance on a stock this extended, the smart move is usually to avoid the conventional wisdom and take the protection. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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