Schaeffer's Trading Floor Blog

Skeptics Surround Outperforming Marvell Technology Group Ltd. (MRVL)

MRVL sees pessimism from all corners of the Street

by 9/23/2013 11:12 AM
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After shedding nearly 48% of its value in 2012, Marvell Technology Group Ltd. (NASDAQ:MRVL) has made quite a turnaround in 2013. Year-to-date, the stock is up around 68%, thanks to solid support from its 20-week moving average -- a trendline that worked against the stock last year. Amid this impressive technical showing, option players have been accumulating puts at a feverish pace, as they bet on a pullback for the semiconductor concern.

Jumping right inů During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) bought to open 16,617 puts on MRVL, compared to 2,289 calls. The resultant put/call volume ratio of 7.26 (up significantly from its month-ago reading of 2.96) ranks in the highest percentile of its annual range, meaning long puts have been initiated over calls at an annual-high clip throughout the last two weeks.

Echoing this trend is the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.75. Not only does this show that put open interest nearly doubles call open interest among options slated to expire in three months or less, but it ranks higher than 99% of similar readings taken over the previous 12 months. Simply stated, short-term speculators have been more put-heavy toward MRVL just 1% of the time within the past year.

In the front-month series, traders have been quick to target the October 12 put. Last week, speculators on the ISE/CBOE/PHLX bought to open 4,283 puts at this out-of-the-money strike, and it's now home to peak put open interest in the October series. Unlike sector-peer NVIDIA Corporation (NASDAQ:NVDA), this open interest configuration could translate into options-related support in the near term, as the roughly 18,200 puts that reside here begin to unwind over the next several weeks.

This growing skepticism toward MRVL is seen elsewhere on the Street, as well. Short interest surged roughly 72% during the last two reporting periods, and now accounts for 9.88 million shares sold short. This is the heftiest amount of shorted MRVL shares since October 2011. Meanwhile, no fewer than 13 out of 23 analysts maintain a "hold" or worse suggestion toward the security, and the consensus 12-month price target of $13.28 represents a tepid 9.6% premium to the equity's current perch at $12.12.

From a contrarian perspective, a re-evaluation of ratings from these holdouts could prompt some of the weaker bearish hands loose. In fact, a bullish brokerage nod on Sept. 10 pushed Marvell Technology Group Ltd. (NASDAQ:MRVL) 1.8% higher on the day.

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