Option Activity Alert: Marvell Tech, SPDR S&P Retail ETF, Fortinet

MRVL – Marvell Technology Group, Ltd. – Investors flocked to Marvell Technology Group right out of the gate this morning to place near-term bullish bets on the chip maker. Shares rallied 2.4% earlier in the session to hit an intraday high of $19.74, but have since pared gains to stand flat on the day at $19.28 as of 10:48 am in New York. Options traders hoping to see Marvell’s shares rise ahead of expiration day this month picked up approximately 2,600 calls at the November $20 strike for an average premium of $0.58 each. Call buyers at this strike make money if MRVL’s shares rally 6.7% over the current price of $19.28 to surpass the average breakeven point at $20.58 by November expiration. Optimism spread to the higher November $21 strike where investors scooped up 4,100 calls for an average premium of $0.27 apiece. Options traders holding these contracts are poised to profit should the price of the underlying shares surge 10.3% and exceed the average breakeven price of $21.27 by expiration day. Finally, bullish players purchased roughly 1,000 calls at the December $22 strike for an average premium of $0.40 a-pop. Investors long the December $22 strike calls stand ready to profit should shares jump 16.2% to trade above $22.40 ahead of expiration day in December. Marvell Technology Group is scheduled to report third-quarter earnings after the final bell on December 2, 2010. The rise in demand for call options on the stock this morning helped the overall reading of options implied volatility on MRVL increase 7.1% to 44.26% by 10:55 am.

XRT – SPDR S&P Retail ETF – The retail ETF popped up on our ‘most active by options volume’ market scanner within the first five minutes of the trading session today after one strategist picked up a sizeable debit put spread in the December contract. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, are currently up 0.10% at $43.66 as of 10:55 am in New York trading. The put player appears to have purchased 11,600 puts at the December $43 strike for a premium of $1.44 each in order to sell the same number of puts at the lower December $39 strike at a premium of $0.42 apiece. The net cost of the transaction amounts to $1.02 per contract and positions the investor to profit – or realize downside protection – should XRT shares decline 3.85% from the current price of $43.66 to breach the effective breakeven point at $41.98 by expiration day. Maximum potential profits of $2.98 per contract are available to the trader in the event that shares of the fund plunge 10.7% lower to trade below $39.00 by expiration day in the final month of 2010.

FTNT – Fortinet, Inc. – Shares of the provider of network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities around the globe surged as much as 22.6% at the start of the session to reach an intraday and new 52-week high of $36.77 on reports the firm was approached by IBM six to eight weeks ago to commence takeover talks. The talks with International Business Machines, the world’s largest provider of computer services, may now be at an advanced stage. Fortinet’s shares are currently up 15.5% to stand at $34.66 as of 11:55 am in New York trading. Some investors are utilizing out-of-the-money call options on Fortinet in order to position for shares to continue higher should confirmed terms of a takeover bid hit the airwaves in the next few weeks. These traders picked up more than 1,250 calls at the November $35 strike for an average premium of $1.83 each. Call buyers make money if FTNT shares rally another 6.25% over the current price of $34.66 to exceed the average breakeven point at $36.83 by expiration day this month. Fortinet’s overall reading of options implied volatility shot up 23.6% to 57.98% just before 12:00 pm.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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