I understand why Xerox is not a popular stock these days. The company is for sale, and until it negotiates more favorable terms with Fuji or finds a new buyer then investors would rather pursue riches in more exciting tech names.

But therein lays the opportunity to write a great put on this stock. At a share price a little above $25, Xerox is valued at less than seven times forward earnings and only 1.2 times book value. That’s cheap, no matter what business a company is in.

As I stated in a recent article in Personal Finance, I believe Carl Icahn and Darwin Deason will be successful in obtaining a better deal sometime this year at which time Xerox should jump back above $30. If that takes longer than I expect and the stock gets put to us at $25, then we’ll hang onto it and collect the 4% dividend while waiting for that 20%+ share price appreciation to kick in.

At a minimum premium of $1.50, selling this put will result in at least a 6% cash return now based on the $25 strike price over a three month holding period, or 24% on annualized basis.

Investors should set aside $2,500 per contract sold to buy the stock in case the option expires in the money.

Regardless of how many contracts you sell, it’s absolutely critical that you follow the instructions below, particularly when it comes to setting the limit order.

How to Make the Trade:

• Trade: Sell to open the October 19, 2018, $25 Put on Xerox (NYSE: XRX).
• Symbol: XRX181019P00025000
• Allocation: Sell one put for every 100 shares of Xerox you would be pleased to buy at $25 per share.
• Prices:
  • Current Stock Price: $25.18 (closing price on 7/19/2018)
  • Limit Order Price: a credit of $1.50 or more.
  • Tell your broker: “I want to sell a put on Xerox stock. Specifically, I want to ‘sell to open’ one October $25 Put for a credit of $1.50 per share or more.”

• Further Instructions Regarding the Trade:
  • If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least $1.50 per share or more.
  • Place your limit order on a “good ’til canceled” (GTC) basis and be patient.

The Win-Win Situation:

For every put contract you sell, you will collect at least $150 that’s yours to keep no matter what happens in the future.

If the put expires worthless, meaning the stock price is above $25 per share at expiration, then we’ll do another trade to create another instant payment.

If the stock is trading at or below the strike price upon the contract’s expiration, then you’ll be buying Xerox at a slight discount to its current market price, while locking in a yield of 4.1% – plus the premium you pocketed when you sold the put.

Then, we’ll collect the dividend while creating more instant payments by selling covered calls against the stock.