Just when you thought the innovation ecosystem was absorbing bubble fears associated with artificial intelligence, the anxieties have come roaring back, taking down sector giants like Marvell Technology Inc (NASDAQ:MRVL). From the start of September to the beginning of December, MRVL stock went on a remarkable run, gaining approximately 41%. Unfortunately, since the close of Dec. 3, MRVL has dropped by around 18%.
What happened? To stay consistent with my prior analyses, no one truly knows the formulation of the gazillions of variables that go into price discovery. That said, the main narrative appears to be renewed AI bubble fears, in light of Oracle Corp (NYSE:ORCL) and its latest earnings results.
Prior to the critical disclosure, many experts articulated that the results and forward guidance could set the tone for other AI-adjacent investments. That analysis proved prescient, with Oracle delivering a mixed message to Wall Street, resulting in multiple semiconductor stocks tumbling. Mainly, the anxiety centered on the potentially overambitious nature of AI spending.
Still, bullish experts stress that machine learnings remains in the early innings. Indeed, there's little indication that interest in AI is waning. If anything, the sector is becoming more competitive — especially in the arena of critical resource supply chains.
Plus, there's another reason to think positively about MRVL stock: the so-called Santa Claus rally.
Historically, the stretch between Christmas and the first trading days of January sees securities typically push higher amid lighter volumes, tax-driven trades and year-end optimism. While this phenomenon tends to benefit longstanding industry heavyweights as opposed to hot tech names, the underlying market reflexivity could potentially boost MRVL stock.
If that wasn't enough to get you thinking, there's also another statistical tailwind that may smile on Marvell.
Buy-the-Dip Sentiments Could Emerge For MRVL Stock
In most analytical frameworks involving the financial markets, price or value is plotted as a function of time. However, it really should be a function of state. The problem, as alluded to earlier, is that no one knows the collective variables that go into price discovery. What makes the matter difficult is that we can never be sure which metrics are weighted more importantly.
While we're at a disadvantage in understanding the true causal state of market behavior, we can calculate its projected impact. In that sense, stocks are like asteroids. Ultimately, we don't know where they come from (i.e. why does the universe have leftover rocks?) but we can sure as heck estimate the damage they would cause if a collision were to occur.
While it might be a strange methodology, we can take the single, continuous strand of MRVL's price data and split it into multiple rolling sequences or trials. Now, instead of measuring one giant asteroid, we view the data as hundreds of asteroid pathways in a fixed-time distribution. What that accomplishes is that we can measure the median potential impact of these asteroids.
For example, if we look at all 10-week returns of MRVL stock since January 2019, the median distribution would range between roughly $80 and $88 (assuming an anchor price of $82). Further, price clustering would likely be predominant at around $84.80.
However, we're interested in isolating for the current asteroid pattern, if you will, which is the 3-7-D sequence; in the trailing 10 weeks, MRVL stock printed only three up weeks, leading to an overall downward slope.
On the surface, this selling-pressure-heavy sequence implies negativity. However, the forward 10-week returns — thanks to buy-the-dip sentiments — stretch the distribution of returns from $78 to $90. Moreover, price clustering would likely be predominant at $85.80, a buck higher than under aggregate conditions.
Using Risk Geometry To Place A Trade
With the above distributional approach, we can project that, on a median basis, MRVL stock is likely to march from around $82 to $86 over the next 10 weeks. Just as importantly, past analogs indicate that, while it's not impossible for MRVL to hit $90 or above, the probability of doing so on a sustained basis is minimal.
That's risk geometry, which reveals the structure of risk and reward across a fixed-time horizon. As far as I'm aware, this insight is only available through quantitative analysis under a distributional lens, which is why I'm so adamant about this approach.
Given this picture and the possibility of a little help from the Santa Claus rally, I'm looking at the 85/87.50 bull call spread expiring Jan. 16, 2026. This wager involves two simultaneous transactions on a single execution: buy the $85 call and sell the $87.50 call, for a net debit paid of $100 (the most that can be lost).
Should MRVL stock rise through the second-leg strike ($87.50) at expiration, the maximum profit is $150, a payout of 150%. Breakeven also lands at $86, which is arguably an ideal threshold.
Between $86 and $88, probability density may plunge by 75.67%. Under this statistical premise, there's no point in stretching the breakeven threshold any further. If you do, probability decay will accelerate exponentially.
When you calculate risk geometry, you have the distinct edge of making informed and efficient decisions.
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