3 Sinking Tech Stocks With Heavy Options Volume

WDAY options traders see a quick bounce

by Karee Venema

Published on Oct 16, 2019 at 3:15 PM

The U.S. stock market is making modest moves this afternoon, quiet after Monday's massive gains on weak retail sales data. Some individual names are making big moves, though, including software stocks Workday Inc (NASDAQ:WDAY), ServiceNow Inc (NYSE:NOW), and Slack Technologies Inc (NYSE:WORK). Here's a quick roundup of what's moving the shares of WDAY, NOW, and WORK.

Workday Stock Breaches Key Moving Average

Workday stock is down 12.4% at $158.48 -- headed for its lowest close since Jan. 3, and its worst day since December 2016 -- after Stifel cut its price target to $180 from $210, saying growth in the company's human resources software is easing. The equity has now erased its year-to-date gain, and sliced through long-term support at its 320-day moving average.

WDAY options volume is running hot, with around 52,000 contracts on the tape, five times what's typically seen at this point, and volume pacing in the 99th annual percentile. The October 162.50 call is most active, and it looks like new positions are being purchased here. If this is the case, call buyers are betting on WDAY bouncing back above the strike price by expiration at the close this Friday, Oct. 18.

ServiceNow Stock Finds Familiar Support

Morgan Stanley downgraded ServiceNow to "equal weight" from "overweight," citing uncertainty surrounding the lack of a permanent chief financial officer. In reaction, NOW stock is off 8.5% at $250.81, but finding support in a neighborhood that's served as a floor since a late-April bull gap, which is currently home to its 200-day moving average.

ServiceNow options traders are in overdrive this afternoon, with around 22,000 contracts exchanged -- more than three times the expected intraday amount. Short-term volatility expectations have ramped up, too, with the stock's 30-day at-the-money implied volatility surging 15.5% to 48.6%, registering in the 94th percentile of its 12-month range.

Slack Technologies Bears Emerge During Sell-Off

Slack Technologies saw its price-target cut at Morgan Stanley, as well, by $10 to $28. The brokerage firm said "upside from current levels will come from more gradual outperformance over time," and cited near-term risk from increasing competition and an easing in IT spending.

Against this backdrop, the shares have plunged 6.4% to trade at $23.15. WORK stock has been sliding since its late-June public trading debut, and a recent rally attempt off its Sept. 27 all-time low of $21.25 was stopped short at its 32-day moving average.

Options traders are positioning for even more downside. Amid heavier-than-usual volume today, speculative players are potentially buying to open the November 25 and 30 puts. By doing so, the put buyers expect WORK to extend its decline south of the strikes through November options expiration.

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