While big data analytics specialist Palantir Technologies Inc (NASDAQ:PLTR) has ranked among the top publicly traded assets this year, the market is a cruelly non-linear and non-ergodic environment. In other words, it's unwise to assume a perfectly stable relationship between relevance and demand. Sure, Palantir's overall fundamentals look strong — especially judging by its string of earnings beats. However, amid the upward path of PLTR stock lie volatile shocks that can easily disrupt ascendant forecasts.
Of course, much of the concern that centers on Palantir right now is that the latest rumblings may not be mere corrective behavior. Instead, several investors have voiced concerns about a bubble brewing in artificial intelligence and other leading innovations. It's gotten to the point where experts like Wedbush analyst Dan Ives have pushed back against the doom-and-gloom narrative.
However, the anxieties won't go away that easily. Notably, Michael Burry of "The Big Short" fame recently disclosed that he held a bearish position against PLTR stock. Specifically, he has acquired two-year puts, which he sees as a sufficient timeframe to express his pessimism.
Still, the issue here is that it's incredibly difficult to forecast that far out into the future — especially when you're talking about the financial markets. There's a case to be made that the equities arena is one of the most complex environments ever known, featuring stochasticity, chaos, reflexivity and heteroskedasticity, among many other characteristics.
Be that as it may, Burry's puts assume a two-year window for the waste product to hit the proverbial fan. That still leaves some time for PLTR stock to undulate. Enticingly, the security just flashed a quantitative signal that could lead to a higher probability of near-term upside.
Even better, by using a framework called trinitarian geometry, we can measure the potential impact of this heteroskedastic phenomenon.
Drilling Into The Math Behind PLTR Stock
To improve the odds of successfully trading PLTR stock, we need to understand where the security is likely to end up. Obviously, no one has a crystal ball that can pinpoint the exact price that PLTR will reach at a given point in time. However, what we can do is to break PLTR's price action into multiple trials and discover where the stock tends to coagulate or cluster after multiple attempts.
Under trinitarian geometry, we can combine the disciplines of probability theory (Kolmogorov), behavioral state transitions (Markov) and calculus (kernel density estimation or KDE) in a bid to identify and analyze probability density. This metric represents the point where prices tend to cluster the most. In other words, if we treat probability as a physical object — rather than just an abstract concept — we can extract the visual shape and structure of risk.
Visualizing risk as a mathematically tangible object changes the entire game when it comes to options.
First, using the trinitarian geometry with the price iteration process mentioned above, the forward 10-week median returns of PLTR stock can be arranged as a distributional curve, with outcomes ranging between $172 and $197 (assuming an anchor price of $174.40). Further, price clustering may primarily occur at $185, with secondary clustering likely to be prominent at $178.
The above assessment aggregates all trials since Palantir's initial public offering. However, we're interested in a specific signal, the 4-6-D sequence; that is, in the trailing 10 weeks, PLTR stock printed four up weeks and six down weeks, with an overall downward slope.
Under this condition, the forward 10-week returns would likely range between $167 and $204, with price clustering likely to be predominant at about $188. When comparing primary clusters between the baseline and the current structure, the positive variance is only 1.62%. However, that's only part of what makes PLTR stock intriguing.
Maximizing The Upside For Palantir Technologies
What's most important about the above analysis is that we now know the structure of risk — a piece of information that 99% of retail traders lack. With this intel, we're going to buy the premium associated with the realistic side of the distributional curve and sell the unrealistic side through a vertical spread options strategy.
One idea that stands out is the 185/190 bull call spread expiring Jan. 16, 2026. This trade requires PLTR stock to rise through the $190 strike price at expiration, which is a rational target given the $188 price clustering forecast. Also, the breakeven price sits at $186.80, which is very reachable based on past analogs. The maximum payout for the above trade is nearly 178%.
Now, the disadvantage of a bull spread is that anything above the second-leg price is not rewarded due to the spread's capped-risk, capped-reward nature. Nevertheless, that might not be a bad deal in this case because of the math.
While PLTR stock may be forecasted to cluster at $188 over the next 10 weeks, the probability density between $190 and $195 drops by roughly 58%. From $195 to $200, the density drops by nearly 91%. In other words, by understanding the shape of risk, we can see that PLTR's exceedance ratio starts dropping off a cliff from $190 onward.
That part of the distributional curve is the probabilistic mass that we can sell because the underlying event is not likely to materialize. What is likely to materialize are prices up to around $190. That's why we're buying the 185/190 spread — because the premium is tied to a future value that is rational, not fantastical.
The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.
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