[Options] Patiently Positioning for a Summer Breakout in $MRVL
Check out long-term chart of Marvell Technology $MRVL:
I'm providing this to give a little big-picture background. We had a breakout of a decade long base following the Covid panic. And now we've come back down to the scene of that breakout. To us, it feels like this base will hold, considering $MRVL is in a strong sector.
When we zoom in...
...we see some solid support and a failed breakdown around the 37.50 level. We're betting that this is going to hold, and more importantly that $MRVL is going to continue taking its time making up its mind until its next earnings report is out of the way.
So we're going to use a call calendar spread to get paid to wait.
Here's the Play:
I like buying a May/August Call Calendar spread at the 42.50 strike for an approximately $2.60 debit. This means I'll be short the May 42.50 calls and long an equal amount of August 42.50 calls, and this debit I pay today is my max potential loss if this trade gets away from me.
As long as $MRVL stays north of 39 and south of 47 from now until May expiration, then we'll likely accrue some open profits in this trade ahead of the earnings event scheduled for May 25 -- after our short calls expire. This profit will give us a little bit of a cushion heading into the binary earnings event in case things go south for us.
That said, during the duration of this trade -- whether we still have the short calls on or not -- I'll look to exit this position if $MRVL sees a close below 37.50. A break of that level invalidates my bullish thesis in this trade.
On expiration day (May 19), if our short calls are in-the-money (meaning $MVRL is trading above the $42.50 strike), then I'll roll the calls out to June for a credit and keep chugging along with the position. And I'll repeat that step again into July options if necessary. Each credit received for these rolls will reduce my net debit in the trade, and the size of the credits will be determined by how close we are to the strike price (the closer, the higher the credit).
On the other hand, if the short calls are out-of-the-money on expiration day, I'll just let them expire worthless and then ride with my long August calls and try to benefit from the potential of uncapped gains.
If you have any questions on this trade, please send them here.
ASO subscribers who missed last week’s video Jam Session where we reviewed activity in our options portfolio from the past week can catch it here.
P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.