Here's my setup:
PLTR Current Price $145.60
ATM Straddle Cost $14.20 PLTR
Breakeven Low @ Expiration $131.40 -9.8%
Breakeven High @ Expiration $159.80 +9.8%
Implied Vol 14% Expected Vol Full Crush (vol points) 65 (simple calc using 4DTE and 11DTE straddles)
Delta $0.98
Gamma $4.52
Vega $12.20
Theta $-176.10
Post earnings median opening gap +/-12% with a 12.2% standard deviation.
68% CI move = +/-24.2%.
Full vol crush = -5.4% of stock price.
Crush adjusted move +/-18.8%.
Implied move +/-9.8% – vs 18.8% – vol looks CHEAP!
However, it's PLTR – and therefore a tough call. On paper, the straddle is cheap with implied nearly half of the crush-adjusted historical move. But $14.20, +/-10% move is still a big number to overcome, and PLTR has a habit big moves or not so big moves (see chart below).
Conclusion: Vol is just too cheap to sit on my hands completely, so I'm willing to take a shot.
Lot's of ways to play this – my go to is defined risk (IC non-directional) rather than simply long straddle/strangle.
As always, the overnight move post EA is something I ignore, as the real price discovery occurs after the open in the morning. Until then, I'll be watching but not getting excited one way or another.
Update in the am after the open!
Palantir ($PLTR) Earnings Vol Setup – Are Traders Leaving Money on the Table?
byu/GammaReaper_ inoptions
Posted by GammaReaper_
1 Comment
This is a solid framework. The key point is that you are comparing the priced move to realized earnings behavior, not just saying “earnings will be volatile.”
If the straddle is pricing roughly +/-9.8% and the historical post-earnings move is materially higher even after adjusting for vol crush, then long vol is at least worth investigating.
The one thing I’d be careful with is the median gap plus standard deviation framing. PLTR has a pretty fat-tailed/event-driven profile, so averages can make the setup look cleaner than it is. I’d want to see how often PLTR actually clears the breakeven after the open, not just how big the initial move is.
For me the important questions would be:
How often did PLTR move more than 9.8% by the next day close?
How often did the opening gap fade?
What did IV crush do in comparable setups?
Is the options market underpricing movement, or just pricing a lower probability of a clean directional continuation?
I like your point about ignoring the overnight reaction too. The post-open acceptance or rejection of the move is usually where the real signal shows up.