Cheap calls pay off in $MRVL

A recent trade in Marvell Technologies shows how inexpensive option plays can work with relatively little money at risk.

On March 8, Investitute’s proprietary programs flagged the purchase of 11,000 May $25 calls for $0.03 to $0.05 with shares at $18.69. This was clearly fresh buying, as open interest in the strike was only 831 contract before that session began.

Those calls traded up to $0.13 today, more than 3 times their average purchase price. The stock rose 7.49% in the same time frame, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

MRVL was up 0.24% to $178.45 today. The chip maker fell after quarterly results earlier this month but has since rebounded.