Updates – WDAY and PCLN Earnings Trade Ideas

by CC February 28, 2017 1:59 pm • Trade Updates

Yesterday we previewed Workday (WDAY) and Priceline (PCLN) into their Q4 earnings. Today, WDAY is down sharply, and PCLN is higher. Let’s check in on those trade ideas and see how they worked. First in WDAY, we detailed two trade ideas, one a hedge for shareholders, and the other a stock alternative with defined risk. Here was the hedge idea:


vs 100 shares of WDAY ($92) Buy the March 90/80/70 for 1.75
  • buy 1 March 90 put for 3.25
  • Sell 2 March 80 puts at .80 (1.60 total)
  • Buy 1 March 70 put for .10

With WDAY now 83.80 (down 7%) this hedge worked nicely. It is worth 4.85 vs the 1.75 paid, so it lessened the blow of about 50% of the move. But with the stock 83.80, the intrinsic value of the hedge is worth more, 6.20 to be exact. That means if the stock stays at this level, the losses on the stock will become even less over the next 2 weeks. And if the stock goes lower towards 80, it protects even more. You’ll want to keep this trade on versus your long stock. The only reason to take it off would be if the stock starts to bounce from here with maybe 86 as a place to take it off as it would be worth roughly the same as it is now, but against smaller losses in the stock.

Now to the WDAY stock alternative. Here it was:

Stock Alternative

WDAY ($92) Sell the March3rd Weekly 100 call to buy the March regular 92.5 call for 3.30
  • Sell 1 March 3rd (weekly) 100 call at .70
  • Buy 1 March (regular) 92.50 call for 4.00

This is basically worthless. But that is sort of the idea. As we said yesterday:

The biggest risk to this is if the stock goes substantially lower, but that’s the idea of this trade as you can protect against a large move lower by defining your risk to just 3.30, rather than the potential for things to get ugly.

With the stock down by nearly $7, this trade lost about 3.10, less than half the move. Having the direction wrong is never fun, but defining risk gives you the opportunity to be more nimble after a big move like this, and those looking to play for a bounce from here have more bullets than those that took the full impact of the decline in stock.

Moving on the PCLN, here’s what we had to say:

Clearly there is no overhead resistance, on a beat and raise the stock is off to the races, so we won’t bother with the consensus trade.

But, If you were inclined to play for a pull-back targeting a re-test of the uptrend, you might consider doing so with defined risk, but looking to minimize the post earnings vol crush that will occur with a long premium strategy.

Bearish/ Hedge:

PCLN (1630) Buy the March 1600/1500/1400 put fly for $19
  • Buy to open 1 March 1600 put for 28.25
  • Sell to open 2 March 1500 puts at 5.00 each (10.00 total)
  • Buy to open 1 March 1400 put for .75

PCLN is indeed off the the races! If this was a hedge, it’s all good as the stock is up more than $100. If it was an outright bearish, not much can be done, you win some, you lose some. But a $19 loss is better than $100 on the short side.