| XRX | diagonal | ||||||
| option | credit | debit | profit | yield | entry | exit | days |
| +c10jul | 0.90 | -1.28 | -0.38 | -29.7% | 11/24/2015 | 3/7/2016 | 104 |
| -c11jan | 0.35 | -0.14 | 0.21 | 150.0% | 12/7/2015 | 1/6/2016 | 30 |
| -c10jan | 0.48 | -0.34 | 0.14 | 41.2% | 12/7/2015 | 1/6/2016 | 30 |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- |
| Status: | 1.73 | -1.76 | -0.03 | -1.7% | |||
| option description key: long/short, call/put, strike, series | |||||||
The business process and document management company Xerox Corp. (XRX), headquartered in Norwalk, Connecticut, closed above its 20-day price channel on Tuesday. With low implied volatility relative to its one-year range and low historical odds of a profitable bull signal, XRX is a candidate for a time spread.
[XRX in Wikipedia]
XRX
For the long leg I shall use the JUL series of options, which trades for the last time on July 15, 2016, 234 days from now, and for the short leg, the JAN series, which trades for the last time 52 days hence, on Jan. 16.
Ranges
Implied volatility stands at 40%, which is 2.8 times the VIX, a measure of volatility of the S&P 500 index. XRX’s volatility stands in the 33rd percentile of its annual range.
| Week | SD1 68.2% | SD2 95% | Earns |
|---|---|---|---|
| Upper | 12.16 | 13.75 | N/A |
| Lower | 8.98 | 7.39 | N/A |
| Gain/loss | 15.1% | 30.1% |
The Trade
XRX has completed two bull signals in the past year, each on average producing a -3.6% loss over 12 days. The low odds of a successful bull signal, combined with low implied volatility relative to the annual range make XRX a candidate for a time spread. I shall today be looking at a possible diagonal spread.
On the chart XRX has been in a downtrend since December. It reversed from a low on Oct. 29 and has risen since, although it remains well below last year's peak.
Zacks Investment Research is somewhat bearish on XRX, giving it a rank of 4.
Analyst coverage of XRX is sparse, at only six. In aggregate they show a bearish -17% enthusiasm index. One third give XRX a strong buy recommendation.
| Strike | OTM | |
|---|---|---|
| JUL | 10 | 50.5% |
| JAN | 11 | 67.0% |
The long leg debit is $1.28 and the short leg credit, $0.35, a yield of 27%. I have not yet set a standard for the short leg yield off the long leg, but recent time spreads have produced around 18%, so XRX's yield is on the high side.
The share price at time of entry was $10.53.
Decision for My Account
I have entered a position on XRX as described above.
-- Tim Bovee, Portland, Oregon, Nov. 24, 2015
References
Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.
Alerts
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Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.License
All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at www.timbovee.com.
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