Tuesday, July 27, 2010

Xerox (XRX) - Action in Sep on Stock Rebound


The trade yesterday was on a 67 delta, so the stock wasn't the 99,000 shares but rather it was 1,005,000 shares (both prints crossed at around the same time, I blew it (I chose the wrong one - I was off by a factor of 10).

My apologies.


XRX is trading $9.54 with IV30™ up 1.3%. The LIVEVOL™ Pro Summary is below.

The company has traded over 40,000 options on total daily average option volume of just 8,680. 30,000 contracts traded in one trade; a Sep 9/10 risk reversal (sell puts/buy calls) on a 67 delta against $9.65 stock. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that both the calls and the puts are opening (volume >> OI).

Trade Stats
Sell 15,000 Sep 9 puts @ $0.25
Buy 15,000 Sep 10 calls for $0.35
Sell 1,000,5000 XRX shares at $9.65

The PnL chart is included (click to enlarge).

This trade creates a net debit of $150,000. At expiration it makes the most money above $11 (ish). It looks for a possible pin in the $9 range (that's the peak in the PnL chart).

The 52 wk range for XRX is [$7.19,$11.72]. The PnL at those levels is:
PnL($7.19) = -$392,700
PnL($11.72) = $$349,650

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.

This is sort of the Rodney Dangerfield of skews; "No respect." You can see The front three months have almost identical skews and there is no bend upward for the 10 strike purchases or a significant bend downward for the 9 strike sales.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see the HV20™ is now well above the IV30™ as XRX stock has rebounded hard from its low a month ago. The next earnings cycle is projected for Oct (or even Nov), so this trade does not worry about that.

This is trade analysis, not a recommendation.

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