ServiceNow (NOW) and Workday (WDAY): Using AI Fears to Find Options Opportunities

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed ServiceNow (NOW) and Workday (WDAY): Using AI Fears to Find Options Opportunities. Here’s an excerpt from the episode:

[Tim] Yes, yes. So ServiceNow, another really, really good company. One of the fastest growing software as a service names.

And when the stock was trading at 9364 on fears that AI would displace them, we sold the November $70 put for $5.45. And what ultimately happened was the stock rallied nicely. Their earnings have been really solid. The guidance has been solid.

They’ve been making AI progress. And so we were able to close the trade out after 98 days and we had made $485 of the potential 545. So once again, really good return, 7.5% on your money, 28% annualised. So that’s ServiceNow. You can see there’s diversification in what we’re doing. We’re not just loading up in one industry or anything like that.

Next one is Workday. Similar story as ServiceNow, where they’re one of the leading human capital enterprise resource management companies. And the stock had plummeted quite a bit.

They have a really good balance sheet on an adjusted earnings basis. The multiple was quite low. So the stock traded down.

And when we sold the put, it was at 126.82. We sold the January 15, 2027 put at the 90 strike price. We collected $7.65. Sometimes people will be like, well, why do you sell options so far out? Time value is a key component of that.

So it maximises the time value aspect of it. But it doesn’t mean we have to hold the option all the way. If the stock rallies prior to expiration as it did, we’re able to get out early.

And so after holding it for only 60 days, when we were willing to own it for 217 days, we were able to realise most of the profit. We got $635 of the 765 target profit. We freed up around a little over $8,000.

So a 7.7% return in 60 days, 47% annualised. So you take a humble 15.6 target and you turn it into 47%. That’s exactly what we want to do.

And that’s why sometimes it makes sense to go further out in time.