Recently, I made a couple of moves with Palantir (PLTR) and, while initially excited, I want to share the correct way to calculate the potential gains from this strategy. I bought **98 shares** of PLTR at **$36.82** and sold a **covered call** with a strike price of **$36.00**, expiring on **October 4, 2024**. I collected a premium of **$1.36** per share for this option. With the current spot price at **$36.92**, let me walk through how this works in my favor—and more importantly, the correct potential profit.$Palantir Technologies Inc.(PLTR)$
### How Covered Calls Work in My Favor
By selling the covered call, I immediately earned **$1.36 per share** in premium, which comes out to **$136** in total (even though I only bought 98 shares, the premium is calculated as if I have 100). This premium helps reduce my effective purchase price for each share.
So, although I bought my shares at **$36.82**, the premium lowers my effective cost per share to:
**$36.82 - $1.36 = $35.46**.
This means that I now need PLTR to stay above **$35.46** to be in profit overall.
### Scenario 1: PLTR Stays Above $36.00 by Expiration
If PLTR remains above **$36.00** at expiration, the call option will likely be exercised, meaning my shares will be sold (or "called away") at **$36.00** each. Here’s what my total profit would look like in this scenario:
1. **I sell my shares at $36.00**, even though I bought them at $36.82. So, on the surface, I’m losing **$0.82** per share on the sale.
2. However, I’ve already collected a **$1.36** premium per share, which more than offsets that loss.
The net profit per share is therefore:
**$36.00 (sale price) + $1.36 (premium) - $36.82 (purchase price) = $0.54 per share**.
For my **98 shares**, the total maximum profit would be:
**$0.54 × 98 = $52.92**.
So, **$52.92** is my total potential gain from this trade. Note that the **$136** I earned from the premium is **not added on top of this**—it’s already factored into my overall profit.
### Scenario 2: PLTR Drops Below $36.00 by Expiration
If PLTR falls below **$36.00**, the call option will expire worthless, meaning I get to keep both the **$1.36** premium per share **and** my shares. Here’s why that’s still a win for me:
1. My effective cost basis is now **$35.46** per share, thanks to the premium.
2. As long as PLTR stays above **$35.46**, I’m in profit, since I’ve already reduced my cost basis.
In this case, I can continue holding my shares and potentially sell another covered call in the future to earn additional premiums, further reducing my cost basis.
### The Bottom Line
In either scenario, the covered call strategy offers me some protection and potential for profit. Even if the stock is called away at **$36.00**, the premium I collected upfront ensures that I’m walking away with a profit. If PLTR drops below **$36.00**, I still benefit from having lowered my effective cost per share and have the opportunity to sell future calls for more income.
Covered calls are a fantastic way to generate income on stocks I already own while limiting downside risk.$Palantir Technologies Inc.(PLTR)$
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