Unusual Options Activity Signals Potential Value in Marvell Stock

Marvell Technology Stock

Marvell Technology Inc. (NASDAQ:MRVL), a semiconductor manufacturer based in Delaware, is experiencing significant unusual call options activity today, suggesting underlying value in the stock due to robust free cash flow and growth in AI demand. This surge in call options could also be influenced by the popularity of Nvidia (NASDAQ:NVDA) stock.

According to the Barchart Unusual Stock Options Report, there has been a notable increase in call option volume for MRVL stock. Specifically, over 2,500 call option contracts were traded at the $63.00 strike price expiring on March 28.

With MRVL stock currently trading at $65.24, these call options are considered in-the-money (ITM) by $2.24 per contract ($65.24 – $63.00). The price of the calls traded was $3.05, indicating $0.81 of extrinsic value in the premium ($3.05 – $2.24).

Investors purchasing these call options are betting on the stock rising above $66.05 per share ($63.00 strike price + $3.05 premium) by March 28. This represents a potential upside in MRVL stock of 1.24%.

The heightened call options trading activity suggests that investors anticipate MRVL stock to increase in value by the end of the month. If the stock reaches $70 by March 28, the intrinsic value of the options would be $7.00 ($70 – $63 strike price), potentially resulting in a significant gain for option purchasers.

Despite weak sales reported in Q4, Marvell Technology remains profitable, with strong non-GAAP net income and robust free cash flow. The company’s focus on data center and AI-related sales, similar to Nvidia, is driving its profitability.

Analysts project substantial sales growth for Marvell Technology in the coming years, indicating a potential for increased free cash flow. Applying a 33.3% free cash flow margin to estimated future revenue suggests the company could achieve nearly double the free cash flow generated in its previous fiscal year.

Furthermore, applying a 3% free cash flow yield metric to the estimated future free cash flow could result in a higher market capitalization for Marvell Technology, indicating the stock may be undervalued.

In conclusion, investors may be overlooking the underlying value of MRVL stock, presenting an opportunity to consider buying in-the-money (ITM) calls, particularly if expecting near-term stock appreciation.

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