Xerox Put Options Surge After Icahn Demands Sale

Xerox stock has gapped higher today

Jan 22, 2018 at 1:13 PM
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Xerox Corp (NYSE:XRX) is trading up, after Carl Icahn demanded the $8 billion printing company put itself up for sale. The activist investor, along with fellow XRX stakeholder Darwin Deason, encouraged Xerox to explore strategic options, said they will elect four new board members, and requested the resignation of CEO Jeff Jacobson.

This follows last week's letter, where the two -- who collectively control more than 15% stake in Xerox -- asked the company to end or renegotiate its joint venture with Tokyo-based Fujifilm Holdings. While reports of the new partnership sent XRX stock shooting 5% higher on Jan. 11, today's headlines have the shares gaining 2.4% to trade at $32.56 -- and nearly closing a late-October bear gap.

And while Xerox's options pits have been relatively quiet, those trading the stock have made a beeline toward puts. Nearly 21,000 XRX puts are open, in the 75th annual percentile. As a point of comparison, just 16,819 calls are outstanding -- a number that sits below 99% of all comparable readings taken in the past year.

While most of this activity has centered at the January 2019 series, the February 29 put is home to peak open interest among front-month strikes, and data from Trade-Alert points to a mix of buy- and sell-to-open activity here. Those purchasing the puts to open are betting that XRX shares will sink below $29 by expiration at the close on Friday, Feb. 16. Conversely, those writing the puts expect the strike to hold as a short-term floor.

Put volume is accelerated today, with the contracts trading at three times the average intraday pace -- albeit amid relatively low absolute volume. In the lead is the February 30 put, and it looks like Xerox options traders are purchasing new positions here.

Options bears may be hoping for a repeat of history, considering the lifetime of these front-month options encompasses Xerox's earnings report, due before the market opens next Wednesday, Jan. 31. Last quarter, XRX stock fell 7.4% in the session subsequent to the company's earnings report.

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