Options Corner: Why The Latest U.S.-China Trade Agreement Makes Marvell A Sleeper Opportunity

Following two days of high-level discussions in London earlier this week, the United States and China have reached a trade agreement. While details are relatively modest, with U.S. Commerce Secretary Howard Lutnick referring to the matter as a "framework," it's a signal that President Donald Trump is making progress with trade negotiations. Among the potential beneficiaries of repaired ties between the two nations is semiconductor firm Marvell Technology Inc MRVL.

While Marvell doesn't attract the same magnitude of attention as a "frontline" semiconductor entity like Nvidia Corp NVDA, the company plays a vital role in artificial intelligence. Primarily, Marvell designs and produces chips for data infrastructure and cloud computing. With more applications shifting to the cloud, combined with the integration of AI, demand for high-performance networking and storage chips has accelerated, thereby boosting the bullish narrative for MRVL stock.

Unfortunately, tensions between the Trump administration and Beijing have sparked concerns due to China's dominance — and subsequent restrictions — on rare earth minerals and magnets. Fundamentally, the issue is that rare earths are essential for multiple industries, including the semiconductor ecosystem. As The New York Times stated last year, the materials represent a battleground for the U.S. and China because they're essential for AI chips.

To be clear, the details regarding the framework are modest. Further, while Lutnick stated that rare earth exports were included in the negotiations and that the matter was expected to be resolved, the specifics were not disclosed. This cloud of uncertainty led some analysts and observers to criticize the announcement as a nothingburger.

In addition, the market is taking a very cautious approach with MRVL stock, which at time of writing hasn't responded positively to the news. Still, the main takeaway is that the Trump administration has consistently demonstrated that it's more bark than bite, implying potential normalization. Therefore, speculators can get ahead of the news before it gets priced in.

MRVL Stock May Also Shine From A Compelling Statistical Setup

Although the narrative for MRVL stock looks intriguing, such storylines only an offer an imprecise implied target. It's part of the reason why Wall Street analysts issue 12-month price forecasts: the length of time affords some "flex" so that the thesis has room to pan out. For traders, though, more precise data is required.

Essentially, narratives focus on the "why" of an investment, making it a useful launching pad for the buy-and-hold crowd. However, traders focus on the "how" — how much, how fast and most importantly, how likely. Especially with options, since these derivatives expire, traders must stack the odds in their favor, both on the y-axis (price) and the x-axis (time).

One useful approach to consider is to focus on market breadth, which is the balance of accumulative and distributive sessions, rather than price action. The problem with price is that it suffers from temporal non-stationarity. Basically, the share price drifts or fluctuates — often wildly — across time. Therefore, a price-based trend or setup might only be relevant for a very specific window.

In contrast, market breadth — which is a representation of demand — is a binary construct. This binarism facilitates stationarity. While the balance of demand can change over time, the definition of demand does not. This attribute enables empirical categorization and quantification, which forms the root of probabilistic analysis.

In the past two months, MRVL stock printed a "4-6-U" sequence: four up weeks, six down weeks, with a net negative trajectory across the 10-week period. In 65.85% of cases, the following week's price action results in upside, with a median return of 4.62%. From this week's opening price of $69.47, the above forecast implies a price target of $72.68.

Should the bulls maintain control of the market, a push toward the $74 to $75 range over the next four weeks would represent an optimistic but rational scenario.

Aggressive Trades For The Marvell Speculator

For those who want to take a shot, there are two ideas that arguably stand out. First, the 70/71 bull call spread expiring June 27 appears enticing. This transaction involves buying the $70 call and simultaneously selling the $71 call, for a net debit paid of $47. Should MRVL stock rise through the short strike price ($71) at expiration, the maximum reward is $53, a payout of nearly 113%.

Second, those who are aggressive but want a little extra time may consider the 70/72 bull spread expiring July 11. Here, the net debit required is quite reasonable at $92. If MRVL stock rises through the short strike price at expiration, the max reward is $108 or a payout of over 117%.

What makes both call spreads attractive is that the statistical response to the 4-6-U sequence should be enough to drive MRVL stock above the profitability thresholds. Moreover, this sequence represents a pivot in sentiment regime. As a baseline, the chance that a long position in MRVL will be profitable over any given week is only 49.91%. Statistically, the odds favor the bullish speculator.

Of course, this is a matter of probabilities, not certainties. The market is chaotic, pricing in all kinds of news as they materialize. However, waiting for certainty erases the opportunity. At the end of the day, every trader must bet on the unknown — that's just life and baseball. The point here is that statistics can be used to focus on ideas that offer better-than-baseline odds.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

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