Xerox Options Cheap Amid Fujifilm Rally

Carl Icahn has been pushing for new leadership at XRX

Jan 11, 2018 at 9:54 AM
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Xerox Corp (NYSE:XRX) is reportedly in talks to team up with Japanese camera maker Fujifilm Holdings. According to the Wall Street Journal, the copy specialist is under pressure from Carl Icahn -- its largest stakeholder -- to modernize, with the activist investor warning in an open letter to shareholders last December that XRX could end up like Eastman Kodak. And while the two companies have been in a joint photocopy venture for more than five decades, speculation surrounding the latest deal includes rumors of new leadership at Xerox.

The rumors are being well received on Wall Street, with XRX stock up 4.5% to trade at $31.71. Since skimming its most recent low of $27.55 in mid-November, XRX stock has added 15%. Analysts, meanwhile, expect the stock to surge to levels not seen since early 2015, with the security's average 12-month price target docked at $37.31 -- a 17.5% premium to Xerox stock's current price.

The shares have certainly been prone to big moves in recent months, though, per XRX's 60-day historical volatility of 23.1% -- docked in the 73rd annual percentile. This has created an attractive opportunity for premium buyers, too, per XRX's Schaeffer's Volatility Scorecard (SVS) of 86. In other words, Xerox has consistently made bigger-than-expected moves over the past year, relative to what the options market has expected.

Along those lines, XRX options are cheap right now. The stock's Schaeffer's Volatility Index (SVI) of 17% ranks in the 2nd annual percentile, meaning low volatility expectations are currently being priced into short-term contracts.

 

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