Marvell Technology (MRVL) reports earnings on Wednesday after the closing bell. So today we're looking at selling a cash-secured put option in Marvell Technology stock to take advantage of the high implied volatility around the earnings announcement. 

The options market is pricing in an 11.9% move in either direction following results. The semiconductor company specializes in data infrastructure markets, including networking, storage and custom system-on-chip (SoC) products. The company has been focusing on artificial intelligence applications that are expected to drive significant growth in the coming years.

Marvell's fiscal fourth-quarter earnings are seen rising 28% vs. a year earlier to 59 cents a share on revenue growth of 26% to $1.8 billion. The firm has scheduled an Investor Day event on June 10 in New York City, where the senior leadership team will provide insights into the company's strategic direction.

Marvell Technology Stock Today: The Secured Put

A cash-secured put involves selling an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash to buy the stock. The goal? Either let the put in Marvell Technology stock expire worthless and keep the premium, or take assignment and acquire the stock below the current price.

Anyone selling puts should understand that he or she may get assigned 100 shares per put contract at the strike price.

A trader selling the March 7-expiring put in Marvell Technology stock with a strike price of 80 will generate around $135 in premium per contract, based on recent trading. The put has a delta of 14, signifying an estimated 86% chance that the put option will expire worthless.

As of late-afternoon trading on Monday, the March 7 put jumped in value and traded at a midpoint of $2.36 as Marvell Technology stock dropped 5%. So, one could also target the 75 strike put to earn a respectable premium.

Marvell Technology typically trades with implied volatility of around 50%. However, volatility on this short-term put option carries an extremely high level of 110%.

The put seller would have the obligation to purchase 100 shares of MRVL stock at 80 if called upon to do so by the put buyer. Calculate the break-even price by taking the strike price less the premium received. In this case we determine a break-even price of 78.65, 14.4% below Friday's closing price.

Risk Vs. Reward

If Marvell Technology stock stays above 80 at expiry, the put option expires worthless. The trader pockets a 1.8% return on capital at risk in just a few days. That works out to 107% on an annualized basis.

The main risk with the trade is similar to outright stock ownership. If the stock falls significantly, the trade will suffer a loss, however the loss will be partially offset by the premium received for selling the put.

Cash-secured puts can generate a return on stocks the trader is happy to own.  The trader either generates a 1.8% return in one week or gets to purchase MRVL stock at a reasonable discount.

If Marvell Technology stock trades below 80 and the put gets assigned, investors can then sell covered calls against the position to generate further income.

Solid Relative Strength

According to IBD Stock Checkup, MRVL ranks No. 9 in its group. It shows a Composite Rating of 73, an EPS Rating of 71 and a Relative Strength Rating of 86.

Options are risky and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ

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