My PLTR cost basis is very low. I will round it to $20 and assume a 1000 shares as example.
When we sell stocks (either sell directly, or use options), the purpose is always the same, to protect the potential "loss" if market turns south. However, we need to have a reasonable estimate on what kind of "loss" we are trying to protect. So....
1: If you sell 1000 shares of PLTR at 217, you are protecting the entire 217-20=197 * 1000 = $197K potential loss. The price you need to pay with such protection is the capital gain on that entire $197K.
2: However, there is zero chance for PLTR to drop all the way back to $20 by Janurary of 2026. Therefore, the above trade is doomed to be a failure as you are trying to protect a scenario that is impossible to take place.
Instead, we can say that, it is very unlikely for PLTR to go below 150 (or whatever that price level you think makes sense). You then sell 150 cc on PLTR and collect $75 premiums (when PLTR is 217).
- If PLTR goes down to 150 by Jan, you close this cc with roughly $70 profit, times that by 1000 shars, you pay tax on $70K + you still keep the shares.
- If PLTR stays between 150 and 225, you do similar things by closing cc ---- you just have less profit than $70K as above
- If PLTR goes way above 225 in Jan, well, this is no different than you selling that 1000 shares anyway --- your shares will be called and you will be paying tax, or you can roll it to Feb or March, hoping PLTR could go down again
All in all, you have much better flexibility and tax benefit to use option to sell your shares.
