Adjust Existing Marvell Technology (MRVL) Position
As I noted in this morning’s Covered Call email our Marvell Technology (MRVL) position broke my mental stop last week. However, the trigger for the stock decline is an interesting situation.
Last week it was announced that Marvell would buy fellow semiconductor Inphi (IPHI) in a $10 billion cash and stock deal. As is usually the case when a company makes a large acquisition, the stock of the acquiring company, more times than not, falls on this announcement … and such was the case with MRVL stock.
Because these stock declines often tend to be short lived, I am going to extend our trade a bit, by closing our November 44 call, and then we will sell a new call to further lower our cost basis.
Here is how we will execute this adjustment:
Buy to Close the November 44 call for $0.15 or less
Sell to Open the December 42 call (exp. 12/18/2020) for $0.85 or more.
Once this adjustment is made the new net position will be:
Long MRVL Stock
Short December 42 call
As is always the case with a covered call, for every 100 shares of stock you own, you can sell 1 call. For every 200 shares of stock you own, you can sell 2 calls. And so on.
Please note, I am breaking my rules, of sorts. However, I am choosing to do so because the trigger for the stock decline was a special situation.
Also of note, I am going to set a stop on this position at 35. Should MRVL stock hit 35 we will close our MRVL position.
Following this adjustment our cost basis on our MRVL position will drop to 40.7 approximately.