Workday (WDAY) is a leading provider of enterprise cloud applications specializing in financial management, human resources, and analytics solutions. Its technology helps businesses across various industries manage their financial and workforce operations efficiently.
In its latest fiscal Q2 2025 earnings report, Workday delivered strong results. Adjusted EPS came in at $1.75, beating analysts’ expectations of $1.65. Revenue also surpassed forecasts, hitting $2.085 billion against a consensus estimate of $2.071 billion. Management raised its full-year fiscal 2025 adjusted operating margin guidance to 25.25%, up from its previous projection of 25% in May. These encouraging numbers demonstrate that Workday’s growth trajectory remains solid.
However, despite the excellent earnings report, there’s reason for caution. WDAY stock surged by 12.49% on Friday and is up 14.48% over the past month. With this substantial rally, some investors might be wondering if the growth story is becoming stretched. That’s where a bull put spread comes into play – you can benefit if the stock merely holds its ground, rather than requiring continued explosive growth.
Lock in Income with a Bull Put Spread on Workday
With the bull put spread, the goal is to capitalize on premiums while limiting risk. Essentially, we’re betting that WDAY stock won’t fall significantly from its current level.
Consider the following options strategy:
- Buy the AUG 30 ’24 $252.50 Put with an ask price of $1.30.
- Sell the AUG 30 ’24 $255 Put with a bid price of $1.75.
Let’s break down the numbers:
- Breakeven Price: $254.55
- Maximum Profit: $45 per contract
- Maximum Loss: $205 per contract
- Risk/Reward Ratio: 4.56 to 1
Why This Strategy Might Work
By purchasing the $252.50 put, you create a hedge against a sharp decline in WDAY stock. Once this hedge is in place, you sell the $255 put to generate income from the premium. The net premium collected for this trade is $0.45 per share, or $45 per contract.
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The breakeven point for this trade is $254.55. As long as WDAY remains above this price by expiration, you’ll realize a profit. Should WDAY stay above $255, both options expire worthless, and you keep the full $45 premium. In the worst-case scenario—where WDAY drops below $252.50—your maximum loss would be $205, calculated as the difference between the strike prices ($2.50) minus the net premium received ($0.45), multiplied by 100 shares.
This bull put spread is attractive because it leverages Workday’s strong fundamentals while limiting your exposure to a potential decline. With the stock having already made substantial gains, this strategy allows you to benefit from the company’s current momentum without requiring further upside.
Technical Analysis: Risk and Potential Upside
This options strategy does present some risks. The latest closing price for WDAY was $259.95, meaning that there’s not much margin of safety between the stock price and the breakeven price of $254.55. If Workday experiences a significant pullback, your position could face pressure.
That said, it’s worth noting that during the late-morning session last Friday, WDAY stock was moving higher. If this momentum continues, the probability of this trade being profitable remains favorable.
Additionally, the average implied volatility (IV) for the options chain ending August 30, 2024, sits at 26.71%, which is significantly lower than Workday’s historical volatility of 43.33%. This suggests that the market may be underpricing risk, potentially enhancing the value proposition of this bull put spread.
Disclaimer:
Stock trading involves significant risks and is not suitable for every investor. The strategies and ideas discussed in this article are for informational and educational purposes only and should not be construed as financial or investment advice. Always conduct your own research or consult with a licensed financial advisor before making any investment decisions.
Please note that selling options can expose you to unlimited liability if the underlying asset moves against you. It is crucial to exercise your in-the-money bought options to offset the potential liability of your in-the-money sold options, particularly in volatile markets. Make sure you fully understand the risks and mechanics of options trading before engaging in these types of transactions.
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