We closed out a profitable position in a Xerox three months ago, just before the stock market went in the dumper. At that time, Xerox was trading around $25. However, XRX sold off nearly 30% over the past month after its credit rating was reduced to non-investment grade (i.e., “junk”) status by Moody’s Investor Services.

Clearly, that’s not good news and a share price reduction was in order. But at a price of $20, Xerox appears oversold and likely to rebound during the first half of this year for the following reasons:

1. Carl Icahn isn’t going to let his substantial investment in Xerox go down the drain (nearly 25 million shares worth almost $500 million as of last count). You can be sure he is working furiously behind the scenes to engineer an asset sale or some other transaction that will drive its share price upward.
2. Xerox’s forward dividend yield of 5% appears safe despite the credit downgrade which is based on the expectation of reduced revenue in the future. We won’t know the company’s fourth quarter results for another month, but we do know that Xerox reported a $274 million increase in adjusted operating cash flow during the third quarter.
3. S&P Capital IQ is estimating normalized EPS (earning per share) of $3.55 for Xerox in 2019, which means the stock is currently valued at less than six times forward earnings. That’s less than half the multiple for the overall stock market.

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 July 19, 2019, $19 put option on Xerox (NYSE: XRX).
• Symbol: XRX190719P00019000
• Limit Order Price: a credit of $2.00 or more.

Tell your broker: “I want to sell a put on Xerox stock. Specifically, I want to ‘sell to open’ one $19 Put that expires on July 19 for a credit of $2.00 per share or more.”

Note: Sell one put for every 100 shares of Xerox stock you would be pleased to buy at $19 per share. Investors should set aside $1,900 per contract sold to buy the stock in case the option expires in the money.

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 equal to the Limit Order Price specified above.
  • Place your limit order on a “good ’til canceled” (GTC) basis and be patient.