Today's column includes planned asset sales from Devon Energy Corporation (DVN), the latest quarterly results from ReneSola Ltd. (SOL), October credit card data from Capital One Financial Corp. (COF), and media optimism about FedEx Corporation (FDX). 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.
Devon Energy Corporation
Devon Energy Corporation (DVN: sentiment, chart, options) announced this morning that it intends to sell its Gulf of Mexico and international assets in 2010, in order to scale down its debt load and refocus on its core U.S. and Canadian operations. The company expects to bring in $4.5 billion to $7.5 billion from the divestitures, and the strategic moves will begin adding to earnings in 2011.
"We do not believe that the value of our high-quality Gulf and international assets is being adequately reflected in our stock price," explained Chairman and CEO J. Larry Nichols. He added, "Following the divestitures, Devon will be uniquely positioned to deliver high organic growth on a sustainable basis, funded entirely with internally generated funds."
DVN has added 3.5% ahead of the open. The stock is now in position to challenge resistance from the $70 level; this round-number region has capped the shares' progress since late September.
Despite DVN's lackluster price action in recent months, option players are showing an unmistakable bias toward bullish bets. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 5.98 calls for every put on the equity. This ratio ranks higher than 95.5% of other such readings taken during the past year, marking a near-peak of optimistic speculation.
ReneSola Ltd.
ReneSola Ltd. (SOL: sentiment, chart, options) reported today that it swallowed a third-quarter loss of $10.2 million, or 14 cents per American depositary share (ADS), as solar cell pricing remained weak and margins suffered. Revenue for the period dwindled 35% to $140.9 million, while gross margin contracted from 21.2% to 3.4%. The results were worse than expected, with analysts calling for a loss of just 7 cents per ADS -- but SOL offset the downside surprise by saying it expects to return to profitability in the first quarter of 2010.
SOL is up 5.4% in pre-market trading as investors digest the news. The stock is attempting to maintain its tenuous foothold atop its 10-day and 20-day moving averages, which have acted as resistance since late September.
However, the effects of options-related pressure could make it difficult for SOL to extend its early gains. The shares are trading below peak call open interest of 3,629 contracts at the November 5 strike, and the unwinding of hedges related to these out-of-the-money calls could act as a headwind during this expiration week.
Capital One Financial Corp.
Capital One Financial Corp. (COF: sentiment, chart, options) noted this morning that its U.S. credit card defaults fell in October, declining from 9.77% in September to 9.04%. Meanwhile, the number of accounts at least 30 days delinquent -- which is viewed as a leading indicator of defaults -- edged up to 5.72% from September's reading of 5.38%. The results were equally mixed among COF's other operations; charge-offs and delinquencies both declined on the firm's U.S. auto loans, but both metrics ticked higher for the company's international operations.
COF is up 1.8% in electronic trading, adding to its year-to-date advance of 21.7%. The stock has recently butted its head against pressure in the $40 region, but rising support from its 10-week and 10-day moving averages could help to propel the equity through this looming hurdle.
Option traders seem to have their doubts about COF's mettle, since puts are the options of choice among short-term speculators. The equity's Schaeffer's put/call open interest ratio (SOIR) currently weighs in at 1.51, with puts easily outnumbering calls among options set to expire within three months.
FedEx Corporation
FedEx Corporation (FDX: sentiment, chart, options) was the topic of an upbeat commentary in Barron's this weekend, with the financial publication asserting that FDX "has upside for the long haul." The article cites several positive catalysts for the parcel firm, including its "growing footprint" in emerging markets such as China, its "considerable operating leverage," and "solid growth at its very profitable FedEx Ground unit."
FDX is up 1.7% in the wake of its Barron's boost, with the security extending its trek above the $80 level. The shares have climbed higher along support from their 10-week and 20-week moving averages since early April, and these trendlines should continue to guide the equity higher.
As FDX adds to its year-to-date ascent, puts have gained popularity in recent weeks -- suggesting that some investors are hedging their long stock positions. The security's 10-day ISE put/call volume ratio stands at 1.92, with bearishly oriented bets nearly doubling their bullish counterparts during the past couple of weeks.
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