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Marvell Technology Group Ltd. (MRVL) Entices Both Bulls and Bears

Near-term call and put buyers flocked toward MRVL on Friday

by 9/9/2013 10:49 AM
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Options players from both sides of the trading fence converged on Marvell Technology Group Ltd. (NASDAQ:MRVL) late last week, as more than 9,900 calls and around 17,000 puts crossed the tape during Friday's session -- more than double the overall norm. While one group of speculators wagered on extended gains for the tech concern over the next several weeks, another bet on a retreat for MRVL during a shorter time frame.

Jumping right in, close to 5,400 calls changed hands at the in-the-money October 10 strike -- the majority of them at the ask price, suggesting they were bought. Meanwhile, open interest rose by 3,162 contracts over the weekend, signaling the initiation of new positions. Since the calls traded for a volume-weighted average price (VWAP) of $2.22, Friday's buyers will profit with each step MRVL takes above breakeven at $12.22 (strike price plus the VWAP) between now and the close on Oct. 18. With the stock up 3% today to perch at $12.42, this scenario has already come to fruition.

At the other end of the options spectrum, nearly 8,900 puts were exchanged at the September 12 strike for a VWAP of $0.46. Again, a large portion of the contracts traded at the ask price, and open interest surged over the weekend, pointing to buy-to-open activity. In this case, the shares must fall below the $11.54 mark (strike price less the VWAP) by front-month expiration in order for the put buyers to secure a profit. This denotes a drop of 7.1% from current levels. The delta for this option is docked at 0.35, meaning it has a 35% chance of finishing in the money. However, even if MRVL remains above the strike price between now and the close on Sept. 20, the most the put buyers stand to lose is the initial premium paid.

Marvel Technology Group Ltd. (NASDAQ:MRVL) has been a technical standout in 2013, gaining more than 71% year-to-date, and outpacing the broader S&P 500 Index (SPX) by over 8 percentage points during the last three months. Still, short interest spiked by a brow-raising 56.2% within the most recent reporting period, suggesting that some of Friday's call activity may have been the work of short sellers looking to hedge their pessimistic positions.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis« perspective, please visit our Trading Floor Blog section.


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