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Weekly Bulls Tag Marvell Technology Group Ltd. (MRVL) for Modest Gains

Against prevailing sentiment, the optimists cling to MRVL's solid technicals

by 7/10/2013 10:17 AM
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Puts continued to have the upper hand in Marvell Technology Group Ltd.'s (NASDAQ:MRVL) options pits yesterday, with put volume topping call volume by a margin of about 9-to-1. According to the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), this has been a trend, as MRVL's 50-day put/call volume ratio of 0.80 has been topped just 8% of the time during the past year.

Furthermore, short-term open interest has never been as put-skewed as it is currently. The stock has a Schaeffer's put/call open interest ratio (SOIR) of 1.64, which means put open interest is considerably higher than call open interest on options expiring in the next three months. The SOIR is in the 100th percentile of its annual range, confirming the bearish bias.

Nevertheless, that didn't stop a group of short-term bettors from wagering on Marvell's weekly 7/12 11.50-strike call during Tuesday's session. Over 2,100 contracts changed hands at the strike, with 94% coming in at the ask price, suggesting they were bought. Open interest popped by nearly 1,400 positions overnight, as well, which indicates the creation of new bullish bets.

The volume-weighted average price (VWAP) for the in-the-money calls was $0.32. In order for traders to profit from the play, they need the shares of Marvell Technology to make an extremely modest move by week's end, when the options expire. Specifically, the underlying must advance to $11.82 (strike price plus VWAP) from its current post at $11.73. But even if MRVL takes a turn for the worse and finishes beneath the strike, the most the speculators have at stake is the premium paid.

The necessary gain seems all the more reasonable when one considers the stock's historical performance. Marvell Technology Group Ltd. (NASDAQ:MRVL) is up over 60% this year, riding atop support from its 50- and 80-day moving averages. Moreover, peak put open interest for the weekly options resides at the 11.50 strike, which could translate to a contrarian boon as the bears hit the exits ahead of expiration.


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