XRX – Xerox Corp. – A sizable short straddle initiated on Xerox Corp. this morning suggests one strategist foresees limited movement in the price of the underlying shares going forward. Shares of the world’s leading enterprise for business process and document management are up 1.80% at $11.94 as of 11:45 am in New York. The options trader looked to the April 2011 $12 strike to sell 10,000 calls and 10,000 puts for a gross premium of $2.10 per contract, or a total of $2.1 million. The investor keeps the full amount of premium received on the transaction if Xerox’s shares settle at $12.00 at expiration next year. Short positions assumed in both call and put options at that strike expose the straddle-seller to losses in the event that shares in XRX rally above the upper breakeven price of $14.10, or should shares slip beneath the lower breakeven point at $9.90, ahead of April expiration. Xerox Corp.’s shares have not traded above $14.00 in at least two years, but have traded under $9.90 as recently as September 16, 2010.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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