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Risk Malaise Alert in Option Market: Workday Inc Implied Price Swing Hits A Weakened Level




Workday Inc (NYSE:WDAY) Risk Hits A Weakened Level

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that Workday Inc (NYSE:WDAY) risk is actually priced pretty low by the option market as of right now. We'll detail it below -- but that's the lede -- the option market is reflecting a sort of risk malaise, for now, an IV30 of 29.42% verus the IV30 of the S&P 500 at 8.37%. The annual high for Workday Inc IV30 is 47.98% -- and we're below that level. The alert here is low vol.



One thing to note beyond the risk malaise alert, which we cover in the article, is that while implied volatility may be low, the real question that needs to be answered for option sellers is not if the impled vol is low, but rather if the realized volatility that is coming in the next 30 days will be lower than the option market is pricing.

To skip ahead of this risk alert and see if buying or selling options has been a winner in Workday Inc, you can go here: Geting serious about option trading.

PREFACE
This is a proprietary risk rating and risk alert system that looks forward for the next month -- or really 30 days to be exact -- and that includes weekends. The system is based on multiple interactions of data points, many of which come directly from the option market for Workday Inc (NYSE:WDAY) . The creator of this model is Capital Market Laboratories (CMLviz.com).


Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth


In the "Why This Matters" section at the end of this article on Workday Inc we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to WDAY and the company's risk rating:

We also take a peek at the implied vol for the Technology ETF (XLK), our broad based proxy for WDAY.





SNAPSHOT SUMMARY
S&P 500 IV30     8.37%
Nasdaq 100 IV30     14.16%
XLK IV30     13.65%

WDAY HV 30     29.64%
WDAY Current IV30     29.42%
52 Week Low IV30     23.79%
52 Week High IV30     47.98%


The risk as reflected by the option market has hit a weakened level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($91.90, $105.20) within the next 30 calendar days.

While the option market risk rating is on the low side, we note that companies in this situation are still susceptible to sudden stock move risk, it's simply the probability of that large stock move is depressed. Buyers of options and volatility may find these prices more attractive than at other times.

WDAY OPTION MARKET RISK
The IV30® is the risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Workday Inc shows an IV30 of 29.4%, which is a weakened level for the company relative to its past.

The option market for WDAY has shown an IV30 annual low of 23.8% and an annual high of 48.0%, meaning that WDAY is at the 23% percentile right now. Here's a table of the data before we dig into the risk rating further.

WDAY
Current IV30    
WDAY
Low IV30    
WDAY
High IV30   
29.4% 23.8% 48.0%

The implied stock swing risk from the option market has created a range which is tighter in the next 30 calendar days for Workday Inc (NYSE:WDAY) than it has been on average for the last year on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 29.64%.




We have a situation now where the IV30 is depressed relative to the past and at the same time the option market reflects the likelihood of a smaller stock movement in the next 30-days than the stock has realized in the last 30-days. Let's turn to a chart to see what's going on.
 
Note how similar the forward risk for Workday Inc is priced (29.4%) compared to what happened just in the last 30-days (29.6%).

Workday Inc Risk Rating
The WDAY risk rating is at 2.5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 2.5 rating are:

The IV30 is below the annual average.
The IV30 is below 30%.
The HV30 is below the annual average.
The HV30 is below 30%.
The stock has moved +17.4% over the last 3-months which does indicate some elevated risk.