Trader Shorted Tesla, Eyes Palantir Earnings Next

After a successful Tesla short, a trader now targets Palantir’s upcoming earnings, weighing potential profits against market volatility.

A trader who recently profited from shorting Tesla stock is now focusing their efforts on another high-profile stock, Palantir, which reports earnings soon. Having mastered a bearish strategy with Tesla ahead of its earnings announcement, the trader has identified what they believe to be another opportunity ripe for similar action.

The strategy has paid off well for the trader, who notes that taking profits is always a wise decision when the situation favors a close. With most of their potential profit secured, the question now becomes whether to hold on to the remaining position for further gains or to walk away with the earnings already achieved.

The trader outlines two clear paths. First, they could take all profits from the Tesla play and wait for another lucrative chance in the market. This conservative approach aligns with the wisdom of investing: “One never loses money taking profits.” The second option involves banking a portion of the gains while reinvesting the rest into Palantir, a company that the trader has expressed a fondness for despite acknowledging its risks.

Palantir’s upcoming earnings have raised eyebrows, especially given the firm’s ambitious goal to grow revenues tenfold without scaling its sales force—an endeavor many see as questionable. The competitive landscape, particularly among large language model (LLM) providers, adds further complexity, as companies might soon favor direct deployments over intermediary platforms.

Looking to the data, the previous quarter revealed a slowdown in commercial backlog growth at Palantir to 12%, compared to 21% the prior quarter. The stock also trades at a sizable premium to its software peers and significantly above its own historical averages. As anticipation builds ahead of the August 3 report, there’s an expectation of approximately a 26% movement in the stock from last week until two weeks post-earnings announcement.

The options market indicates a projected one-day earnings move of 9.5%. This figure is notably higher than the averages from the past four quarters, yet still falls short of the long-term expected movement of over 14%. Traders are advised to proceed cautiously when approaching the options, given the volatility currently priced in.

The trader’s planned moves include closing out the Tesla position, selling the August 360/330 put spread to bank substantial profits that have more than doubled since initiating the trades. For those inclined to push their luck, the next step involves purchasing the Palantir August 21st $120/$95 put spread, funded by some of the proceeds from the Tesla strategy. The risk of loss is defined to the debit cost paid.

With maximized profit potential hinging on Palantir’s stock falling below $95 by expiration, practically aligning with the historical response trend during earnings, this strategy mirrors the careful approach taken with Tesla while also leveraging the success of previous trades.

As excitement mounts over Palantir’s numbers, all eyes will be on the market reactions once the announcement lands, as traders adjust their strategies based on the outcome.