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Options Edge: Chevron, AK Steel, Genworth Financial, and priceline.com

The oil major missed revenue forecasts, though third-quarter profit topped expectations

by Elizabeth Harrow (eharrow@sir-inc.com) 10/30/2009 9:26 AM

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Today's column includes the latest quarterly report from Chevron Corporation (CVX), a brokerage boost for AK Steel Holding Corporation (AKS), an upside surprise from Genworth Financial, Inc. (GNW), and some major index recognition for priceline.com Incorporated (PCLN). Each day, Options Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.

Chevron Corporation

Chevron Corporation (CVX: sentiment, chart, options) reported this morning that its third-quarter net profit tumbled to $3.83 billion, or $1.92 per share, compared to last year's income of $7.89 billion, or $3.85 per share. The results narrowly surpassed Wall Street's consensus estimate for a profit of $1.47 per share. Revenue for the quarter dropped 41% to $46.6 billion, falling short of analysts' expectations for $47.0 billion.

CVX price chart CVX's hefty year-over-year earnings slump was chiefly the result of a steep decline in oil and natural gas prices. However, the company also struggled with wafer-thin margins in its refining operations. "Weak demand and plentiful supply affected all our major markets," reported Chairman and CEO Dave O'Reilly.

CVX is up less than 1% in pre-market trading, adding to its meager year-to-date gain of 5.4%. The shares are battling short-term resistance at the $78 region, which has exerted pressure since mid-October, but CVX is perched above support at its 10-day, 20-day, and 80-day moving averages.

Heading into the oil major's third-quarter report, option players aligned themselves bearishly. CVX's Schaeffer's put/call open interest ratio (SOIR) is docked at 0.94, just 11 percentage points from an annual pessimistic peak. In the same vein, traders on the International Securities Exchange (ISE) have bought to open 1.27 puts for every call on CVX during the past two weeks.

AK Steel Holding Corporation

AK Steel Holding Corporation (AKS: sentiment, chart, options) scored an upgrade this morning, as UBS boosted its rating on the equity from "sell" to "neutral." The brokerage firm observed that 2010 looks "steady but not stellar" for the commodity concern, adding, "We also believe as a smaller carbon steel producer, AK will be more able to run at high utilization relative to peers even assuming little improvement from H209 auto recovery levels."

AKS has tacked on 1.4% ahead of the bell, suggesting the stock could reclaim a spot atop its 32-week moving average in today's trading. The steel security has rallied nearly 81% year-to-date, but its momentum has recently sagged; AKS has underperformed the broader S&P 500 Index (SPX) by 20 percentage points during the past 40 days.

However, some speculators appear to be betting on a short-term rebound for AKS. The most popular call in the November series is the out-of-the-money 21 strike, with 6,210 contracts outstanding. The equity would need to climb about 25% from yesterday's close to attain this price.

Genworth Financial, Inc.

Genworth Financial, Inc. (GNW: sentiment, chart, options) announced last night that it swung to a third-quarter profit of $19 million, or 4 cents per share, compared to its year-ago loss of $258 million, or 60 cents per share. Operating earnings slipped to 24 cents from 51 cents in the third quarter of 2008. Revenue for the period edged 10% higher to $2.39 billion. While the revenue figure fell short of analysts' prediction for $2.52 billion, GNW's per-share profit easily surpassed expectations for a loss of 2 cents per share.

Thanks to the upside surprise, GNW has climbed 11.6% in electronic trading. The security is now in position to take out short-term resistance from its 10-day and 20-day moving averages, which have guided the shares lower since late September.

Despite GNW's year-to-date advance of roughly 260%, speculative investors are remarkably skeptical toward the shares. The equity's Schaeffer's put/call open interest ratio (SOIR) rests at 1.16, in the 95th annual percentile. In other words, short-term option traders have been more bearish just 5% of the time during the past year.

priceline.com Incorporated

priceline.com Incorporated (PCLN: sentiment, chart, options) is pointed higher in pre-market action after the online travel firm secured some impressive Street cred. Specifically, William Shatner's employer will soon be added to the S&P 500 Index (SPX), replacing the recently acquired Schering-Plough (SGP). No date has been announced for the shift, as SGP's buyout by Merck (MRK) is still awaiting final regulatory approval.

PCLN has cruised to a gain of 4.2% ahead of the bell, adding to its 2009 rally of 120.8%. The shares have marched consistently higher since November 2008, buoyed by support at their 10-week and 20-week moving averages.

Judging by recent option volume, traders expect PCLN's uptrend to continue during the near term. The stock sports a 10-day ISE call/put volume ratio of 2.06, with bullish bets more than doubling their bearish counterparts during the past couple of weeks. Of course, with a whopping 17.3% of PCLN's float sold short, some of these calls might have been purchased as hedges.

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