Unusual strategy extends bet on Marvell


An investor is rolling a large position forward in Marvell Technology ahead of the company's earnings report after the market closes today.

Some 20,000 June 16 calls were sold for $0.09 and $0.10 against existing open interest. An equal number of July 16 calls were purchased for $0.20 to $0.22, resulting in a net cost of about $0.10.

While call rolls are usually bullish, today's activity is less clearly so. If the investor expected a pop on the earnings report, it would have made more sense simply to hold the June contracts.

But the options will lose value quickly if the semiconductor stock doesn't rally immediately. That would increase the cost of doing the roll later because it would mean less income from the sale.

Therefore, it appears that today's transaction reflects a lukewarm expectation for today's report. The trader is still positioned to profit from a good number but has essentially hedged the risk and bought more time for MRVL to climb.

The stock is up more than 1 percent to $14.33 but has lost 35 percent of its value since mid-January. Much of the drop occurred on March 4 after management warned that demand from cell-phone makers and storage companies was shrinking.

MRVL has been trying to cling to the key $14 level, which has provided support and resistance at various times in the last three years. Some traders may expect the stock to hold this price even if quarterly results stay weak before eventually rebounding.

Overall option volume in the name is more than triple the daily average today, with calls outnumbering puts by 9 to 1.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

Referenced Stocks: MRVL



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