Jim Strugger's Option Strategy For Marvell Technology Group Going Into Its Earnings

Marvell Technology Group Ltd. MRVL is set to announce its first-quarter results on THIS Thursday and there isn’t much that the Street is expecting from the company after its negative guidance.

MKM Holdings Derivatives Strategist Jim Strugger was on Bloomberg Monday to discuss his option strategy on Marvell going into its earnings.

Reasoning Behind The Trade

"So there is a bifurcation in the Chinese smartphone market," Strugger said. "Mass market demand weak, but there is an ongoing and strong migration to higher end smartphones. That has created divergences among the component suppliers. So, among the losers at least in the short-term are Marvell…The winners include Skyworks, SWKS, and Avago, AVGO."

The Trade

He continued, “So what we want to do in Marvell. They have already pre-announced at the end of April negatively, they will report on Thursday of this week. There is a nice spread between the implied volatility and realized volatility. We don’t think the stock moves here for a while. So, the way we like extracting some of that premium is to sell a covered strangle.”

“That means you are long the stock, you want to sell a 13/15 strangle. You are selling the 13 Put, you are selling the 15 Call. If the stock gets up to that 15 level, you are selling your stock up there, if it remains in that range, you are just pocketing about 3 percent. So, you are creating a synthetic dividend over the next several weeks to June expiration,” Strugger concluded.