Marvell Options Traders Bet on Rebound Despite Stock's 10% Plunge

Marvell Technology Inc. (MRVL) shares fell nearly 10% on Friday, but heavy trading in the options market suggests a tug-of-war between investors hedging against further losses and those betting on a swift rebound. A significant drop in implied volatility indicates the market reaction may be less panicked than the stock's sharp decline implies.

Options Market Signals a Split View

Trading in Marvell options surged to 456,097 contracts by midday, a volume well above its daily average, according to data from Investing.com. This heightened activity points to traders positioning for continued turbulence following the stock's post-earnings drop.

Despite the sell-off, bullish bets outnumbered bearish ones. Call volume, which typically profits from a rising stock price, reached 267,448 contracts, compared to 188,649 put contracts. Key activity included:

• Short-term bullish bets: Significant volume was seen in the August 28 $230 and $250 strike calls, indicating some traders expect a quick recovery above the current price of $217.58.
• Major downside hedges: In a sign of caution, over 23,000 contracts traded for the October 16 $165 put, a deep out-of-the-money option that suggests some market participants are preparing for a much larger decline.

Volatility Eases Despite Sell-Off

Ad

A key indicator of market sentiment, 3-month implied volatility, fell sharply by 8.52 points to 63.96%. While still elevated, this decrease suggests that options sellers are less concerned about a further spike in price swings. This cooling of volatility often signals that the initial panic from a negative news event may be subsiding as the market recalibrates expectations.

Furthermore, the price of downside protection relative to upside calls has become more balanced. The 90/110 skew, a measure of this relationship, reflects a more neutral risk view than what might be expected after such a steep stock price decline.

Context and Headwinds

The optimistic positioning in the options market contrasts with some valuation metrics. According to Investing.com, one fair value estimate places the stock at $185.42, more than 14% below its current trading level. This suggests the stock faces potential headwinds even if sentiment improves.

Even with Friday's decline, Marvell's stock remains up 213% over the past year, highlighting its significant run-up. The analyst consensus remains a "Strong Buy" with a mean price target of $273.18, indicating that Wall Street largely sees long-term potential despite the current volatility.