The Tesla Trade Paid Off
Michael Khouw saw something he did not like in Tesla before its earnings report. He bought a bearish put spread - a bet that the stock would fall - and it worked exactly as planned.
Tesla reported $28.2 billion in quarterly revenue, which was actually 26% higher than the same quarter last year and above what analysts expected. That sounds great on the surface. But the profit number told a different story.
Adjusted earnings per share came in at 34 cents, well below the 50 cents Wall Street was looking for. The company's operating margin was just 1.4%. And its capital spending surged 142% compared to the year before, swinging free cash flow negative.
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Investors did not like the mix, and Tesla's stock slid roughly 14.5% Thursday.
As he put it, "One never loses money taking profits."
Why Palantir Looks Vulnerable
Now Khouw is eyeing a similar play on Palantir. He sees several counterpoints heading into the earnings report. The company's plan to increase revenue ten times without hiring more salespeople is, in his view, "ambitious." He expects competition among LLM providers will heat up, and businesses are increasingly choosing to implement large language models directly instead of using an intermediary platform. Although the market is big, it is limited, and international sales will probably be held back because governments typically prefer local vendors for national security work.
The stock also commands a significant premium compared with other software companies and stands far above its own historical ratio of enterprise value to sales.
Looking at past data, Palantir's share price typically moves about 26% from one week before earnings through two weeks after. Market pricing implies a single-day earnings swing of 9.5% - exceeding the moves of the last four quarters but remaining well under the long-term average of over 14%. August options, though they carry 65% implied volatility and seem pricey, may actually be fair if you use spreads.
The slowing growth in Palantir's commercial backlog adds another layer of concern. In the first quarter, that expansion rate halved from 21% to just 12%, signaling that the company's core government-adjacent business may be losing momentum even as its stock trades at eye-watering multiples. For a firm valued largely on future AI adoption, such deceleration does not square with the current share price.
The most you can lose is the amount paid for the spread. The best-case profit equals the $25 difference between strikes minus the debit, and that occurs if Palantir ends at $95 or lower at expiration - which represents a fall of roughly 23% from today's price.
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