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Marvell Technology Group Ltd. (NASDAQ: MRVL) stock is falling today after the company posted a third-quarter loss of $6.4 million after the close yesterday. While MRVL's revenue rose 46% to $758.2 million and EPS beat estimates, this revenue made its fourth-quarter guidance look weak. Wall Street was looking for 6% sequential growth rate in the current quarter; MRVL's forecast translated to 3% sequential growth. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MRVL.After hitting a one-year high of $21.85 in December, the stock hit a one-year low of $14.50 today. This morning, MRVL opened at $15.59. So far today the stock has hit a low of $14.50 and a high of $15.59. As of 10:50, MRVL is trading at $15.02, down $1.63 (-9.8%). The chart for MRVL looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $20 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in six months as long as MRVL is below $20 at May expiration. Marvell would have to rise by more than 33% before we would start to lose money.
MRVL hasn't been above $20 by more than a few cents since February and has shown resistance around $17 recently. This trade could be risky if the company's coming quarter also beats expectations, but even if that happens, this position could be protected by the resistance MRVL formed when it topped around $20 in July.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in MRVL.
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