Market Overview

A Look At Some Bearish Options Activity In Marvell Technology

A Look At Some Bearish Options Activity In Marvell Technology

Marvell Technology Group Ltd. (NASDAQ: MRVL) stock is off to a hot start to 2019, but at least one large option trader made a big bearish bet that the rally has run out of some steam. The option market activity suggests Marvell Technology might miss expectations when the company reports first-quarter earnings later this month.

The Bet

On Wednesday morning, Benzinga Pro subscribers received options alerts after a series of three large Marvell option trades.

The largest of the three orders was a trade for 11,588 Marvell call options at a $28 strike price that expire on June 21. The calls were sold at the bid price of 51.5 cents and represent a $596,782 bearish trade ahead of the company’s earnings report. The break-even price for call options is $28.515, more than 13 percent above today’s trading price.

Options Insight

Many stock traders watch the options market daily to gain insight into to what options traders are thinking. Even if they aren’t trading options themselves, stock traders stay on the lookout for unusual option trading activity.

Options traders are typically seen as more advanced than the average stock trader given the sophistication of the options market. The larger the order, the more traders pay attention to what could be an institution or wealthy individual or industry insider with unique insight into a stock.

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Expectations Too High?

Marvell's stock is up 55 percent so far in 2019 as investors make bets that the rollout of 5G wireless networks will ramp up demand for Marvell’s products. The call seller may be concerned that expectations are too high for the stock in the near term.

Unfortunately, stock traders often use the options market to hedge larger stock positions. In that respect, it can sometimes be difficult to determine if a large option trade represents a trader’s true sentiment toward the underlying stock. In the case of Marvell, the $596,782 trade is relatively small, making it unlikely to be related to a stock position.

The stock traded around $25.10 per share at time of publication.

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