Morning Commentary: Workday convertibles active on quiet morning as maturity approaches

By Abigail W. Adams

Portland, Me., May 23 – It was a quiet morning in the convertibles secondary space with equity markets in the green at the market open.

While sources questioned whether indexes would stay positive for the duration of Monday’s session with selling pressure dragging indexes down after a strong start, they remained positive early in the session.

The Dow Jones industrial average was up 474 points, or 1.50%, the S&P 500 index was up 1%, the Nasdaq Composite index was up 0.22% and the Russell 2000 index was up 0.47% shortly before 11 a.m. ET.

However, the convertibles secondary space was off to a slow start with $41 million on the tape about one hour into the session.

Workday Inc.’s 0.25% convertible notes due Oct. 22, 2022 remained active as the maturity of the notes fast approaches.

The 0.25% convertible notes were changing hands at 118.5 versus a stock price of $167.85 early in the session.

There was $5 million in reported volume.

Workday’s stock was changing hands at $164.51, a decrease of 0.88%, shortly before 11 a.m. ET.

The notes were trading at an 8 point premium to parity.

Despite the short time left for the notes, they still carried lots of optionality to the upside and downside, a source said.

While the notes carry a call option with the possibility of making money to the upside, the premium on the notes will dissipate quickly as their maturity approaches.

However, “they do have put optionality,” a source said, with the downside protection of par.

Market players stand to receive a healthy return if they play the notes on a heavy hedge and stock collapses prior to the maturity, the source said.

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