The stay-at-home paradigm has revolutionized the workforce, accelerating demands on the cloud and in telecommunications – including the rollout of next generation 5G wireless networks.
Cabot Profit Booster 145
This Friday is the expiration of our October Covered Calls, and I’m happy to report that we are on our way to another spectacular month of profits. HZNP, PENN, MOS, and PINS are all trading above our short strike prices (for now) which would yield us profits ranging from 7.88% to 17.41% at the end of this week.
That being said, today is not yet expiration Friday. And because of that, as usual, I will update you on all four of these positions Thursday afternoon or Friday morning. Be on the lookout for that email, which will include instructions if we need to act on any of our positions.
As for the market, conditions have improved again the last two weeks and we will keep pushing the Profit Booster portfolio ahead. Which brings me to this week’s idea ...
The Stock – Marvell Technology (MRVL)
The stay-at-home paradigm has revolutionized the workforce, accelerating demands on the cloud and in telecommunications – including the rollout of next generation 5G wireless networks. Companies like Marvell are powering this digital transformation, and while the firm is already a top player in fabless semiconductor design, it’s quickly becoming a leader in cloud computing while benefiting from China’s 5G buildout (with two of its customers receiving around half of recently announced projects).
Marvell reported strong results in Q2, including better gross margins, lower expenses and revenue that grew 5% sequentially and 11% year over year. While storage revenue grew a modest 6% in the quarter, its networking business revenues were solidly higher (+23%), thanks to ongoing 5G deployments in China.
The company also received approval for several key programs, including an ASIC-based cloud, a 5G baseband processor for Nokia and processors customized for “massive” multiple transmitter applications to Samsung (both expected to ramp up later this year). Along with 5G, the company sees the cloud data center market as a major early-stage growth opportunity. Management also guided for Q3 revenue to be around $750 million (up 13% and in line with expectations).
Marvell’s expanding presence in the red-hot 5G and cloud markets – as well as its exposure to the emerging connected auto market (automotive ethernet products will soon start shipping into model-year 2021 vehicles which are starting production now) – is expected to drive continued growth for many years to come. Analysts see earnings up 40% this year and 50% next as business gains momentum. We agree and see a bright future ahead.
Technical Analysis
Following the March panic low, MRVL lifted off from a solid base in May and quickly reached a record high by June. A 3-month period of volatility followed which saw shares whip around, with the stock temporarily falling under the 50-day line. But this proved to be a classic “head fake” as MRVL recovered its stride and is once again in liftoff mode.
Stop — 38
The Covered Call Trade
Buy Marvell Technology (MRVL) Stock at 43.5, Sell to Open November 44 Strike Calls (exp. 11/20/2020) for $2, or a Net Price of 41.5 or less
Static Return: $200 per covered call (4.81%)
Breakeven: 41.5
Covered Call Return (if assigned): $250 per covered call (6.02%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 41.50 or less. (In this case 43.5 minus 2 = 41.5. Or another example is you could pay 43.75 for the stock and sell the call for 2.25, which also equals 41.5)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
