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Earning extra income and buying at a discount: Covered calls and cash-secured puts on Palantir
Note: This is marketing material.
Earning extra income and buying at a discount: Covered calls and cash-secured puts on Palantir
Introduction
Palantir has been back in the headlines after the U.S. Army raised the ceiling on its Maven Smart System contract to $795 million on 21 May 2025, underscoring the company’s deepening role in federal-level data and artificial intelligence projects. Market watchers noted a sharp uptick in the share price on the news, as investors weighed the long-term revenue potential of the expanded deal.
Why Palantir?
Palantir (PLTR) is a well-known technology stock with an active options market. This combination of fresh government momentum and healthy option premiums makes it an ideal case study for two beginner-friendly strategies: the covered call and the cash-secured put. Both fit investors who already hold shares or have cash on hand to buy more.
A quick introduction to options basics
Before we dive in, here are some terms you’ll see throughout:
- Option: A contract giving the buyer the right, but not the obligation, to buy or sell a stock at a set price (the strike price) by a specific date (the expiry).
- Strike price: The price at which you can buy (call) or sell (put) the underlying stock.
- Premium: The income you receive for selling an option.
- Expiry: The last date the option can be exercised.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
1. The covered call: Earn extra income from shares you own
Scenario: You own 100 shares of PLTR, currently trading near $130 per share.
Step-by-step: How to sell a covered call
- Choose a strike price and expiry
For this example, you sell a call with a $145 strike price, expiring in about two and a half weeks (June 20, 2025). - Receive the premium
You receive $2.28 per share ($228 total for 1 contract of 100 shares).
What could happen at expiry?
- If PLTR stays below $145:
You keep your 100 shares and the $228 premium. - If PLTR rises above $145:
Your shares are sold at $145 each. You keep the premium and the price gain up to $145.
Calculation example
- Your shares: Bought at $130, sold at $145 = $1,500 gain
- Add the $228 premium = $1,728 total
What are the main benefits?
- You generate income from your existing shares.
- You set a selling price you are comfortable with.
- You get a cushion if the stock stays flat or falls slightly.
What are the main risks?
- If the share price soars far above $145, you miss out on extra gains above the strike.
- You still face downside risk if PLTR falls below your original purchase price, though the premium softens the loss.
2. The cash-secured put: Get paid to buy at a lower price
Scenario: You have cash set aside and want to buy more PLTR, but only at a lower price.
Step-by-step: How to sell a cash-secured put
- Choose a strike price and expiry
You sell a $115 strike put, expiring June 20, 2025. - Set aside the cash
Have $11,500 ready in your account (enough to buy 100 shares at $115). - Receive the premium
You receive $1.96 per share ($196 total for 1 contract).
What could happen at expiry?
- If PLTR stays above $115:
The put expires worthless; you keep the $196 premium and your cash. - If PLTR drops below $115:
You are required to buy 100 shares at $115, but your net cost is reduced by the premium ($113.04 per share).
Calculation example
- Shares assigned at $115
- Subtract the $1.96 premium = net buy price of $113.04 per share
What are the main benefits?
- You get paid to wait for a possible dip.
- You either buy shares at a lower effective price or keep the premium as extra yield.
What are the main risks?
- If the stock falls sharply below $115, you must still buy at $115.
- Your cash remains unused if the stock stays well above $115.
Combining both strategies
A long-term investor might use both the covered call and the cash-secured put at the same time:
- Sell a covered call to generate income from shares you own and set a target selling price.
- Sell a cash-secured put to try to buy more shares at a lower price or just earn additional income if shares do not fall.
Summary table: Possible outcomes
| Stock price at expiry | Covered call result | Cash-secured put result | Overall effect |
|---|---|---|---|
| Above $145 | Shares sold at $145 + $228 premium | Keep $196 premium | Profit on shares plus premiums |
| $115–$145 | Keep shares + $228 premium | Keep $196 premium | Keep shares, earn both premiums |
| Below $115 | Keep $228 premium (shares lose value) | Buy more shares at $113.04 | Own more shares at discount, earn premiums |
Frequently asked questions
What if the share price is at the strike at expiry?
Usually, the option is exercised if it’s at or above the strike for calls, or at or below for puts. Be prepared for shares to be sold or bought in this case.
Can I close the option early?
Yes, you can buy back the option before expiry to lock in a gain or avoid assignment.
Should I use these strategies if I never want to sell my shares or buy more?
No—only use covered calls if you are comfortable selling above your strike, and only use cash-secured puts if you are happy to own more shares at your chosen price.
Conclusion
Covered calls and cash-secured puts offer practical, lower-risk ways for long-term investors to generate income or buy shares at a discount. They do require discipline and a willingness to follow through on selling or buying shares if assigned. For patient investors who want to get more from their stock portfolio, these strategies can add an extra layer of control and potential return.
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