Shares of information technology company Xerox Holdings Corporation (XRX) have been trending slightly down over the past year, with some periodic spikes higher in price. One trader is betting on a rally in shares in the next few months.
That’s based on the May $23 calls. With 56 days until expiration, 4,800 contracts traded compared to a prior open interest of 105, for a 46-fold jump in volume. The buyer of the calls paid $0.22 to make the trade.
Shares of the company recently traded just under $20, so they would need to rise just over 15 percent in the next two months for the option to move in-the-money. Given that the stock has traded as high as $25.58 in the past year, the move looks aggressive, but realistic.
The company has seen a slight drop in share price in the past year as revenue and earnings have slid. But shares are trading at 10 times forward earnings estimates.
Action to take: Shares are an interesting speculation here, as their low value could make the company attractive to a bigger player in a buyout, especially given that the company has just seen its market cap drop under $3 billion. For now, investors can likely expect a slow rebound, but can also get a 5 percent (and growing) dividend yield while waiting.
For traders, the calls are an inexpensive rebound trade capable of triple-digit returns from these low levels, so look for a quick bounce here to take profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.