Genworth Financial Inc (GNW) Bulls Hold Tight Amid Post-Earnings Dive

Genworth Financial Inc has lost a third of its value in the wake of its earnings report

by Karee Venema

Published on Nov 6, 2014 at 10:49 AM
Updated on Apr 20, 2015 at 5:09 PM

Genworth Financial Inc (NYSE:GNW) tagged a fresh annual low of $8.75 earlier, but was last seen down 35.8% -- its heftiest one-day drop in six years -- after the company recorded its biggest quarterly net loss on record. Amid this bearish gap, the stock has been placed on the short-sale restricted list, and options volume has soared to 28 times the average intraday pace. Short-term contracts are in high demand, too, as evidenced by GNW's 30-day at-the-money implied volatility, which has soared 67.7% to 64.2% -- a 52-week peak.

Despite today's sharp move lower, calls have the edge over puts, with a number of option bulls betting on a quick move back into double-digit territory. Specifically, the stock's weekly 11/7 and 11/14 10-strike calls have received notable attention, with a collective 10,489 contracts on the tape at last check. The majority of these calls have crossed on the ask side, and volume outstrips open interest -- two signs new positions are being purchased.

By initiating these long calls, traders expect GNW to reclaim its perch atop the $10 mark by the respective expiration dates. Amid today's steep sell-off, though, delta on the weekly 11/7 strike has plunged to 0.17 from 1.00, suggesting a less than 1-in-5 chance the option will be in the money at this Friday's close, when the series expires. Meanwhile, delta on the weekly 11/14 strike -- which expires at next Friday's close -- has dropped to 0.22 from 1.00.

Heading into today's session, Genworth Financial Inc (NYSE:GNW) was already down 9.4% year-to-date, yet half of covering analysts had levied a "buy" or "strong buy" rating toward the shares. Today's dive hasn't convinced analysts at BTIG to budge from their "buy" rating, though, explaining the company's fundamental woes are now priced into the stock. They did, however, cut their price target by $6 to $16, although this still represents expected upside of nearly 77% to the security's current perch at $9.04. Meanwhile, Compass Point lowered its opinion of GNW to "neutral."

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