Chip stocks continue to surge. Here’s how to buy into the trend for less

John Maynard Keynes famously said: “Markets can remain irrational longer than you can pay your debts.”

This is good advice for anyone looking for short-cut stocks based on price movement alone.

I particularly like a bullish chip stock: Marvell Technology (MRVL). The story of AI infrastructure is real. special silicone earnings are real and the stock’s leadership reflects real fundamental momentum. But heading into Tuesday’s earnings report after the bell, I’m not chasing that.

MRVL sits at the intersection of hyperscaler capex and private ASIC demand; these are the two strongest headwinds in technology. Institutional money has made a big return to the name, and price action shows it; It has increased by more than 130% year-to-date and by more than 220% in the last 52 weeks.

My problem is that the rally continues unabated. As I write this, MRVL has reached another new high and the 14-day RSI is above 70 (though not as high as it has been recently), indicating that the pace of relative outperformance is slowing. While this isn’t a sell signal per se, for a name that’s already had a massive rise it does beg the question: How much is it already priced at? Notice how MRVL is currently above the long-term moving average (top chart) and the relatively high option premiums are currently (bottom chart).

*The options market is pricing in a ~13.5% move by the end of the week; “This is much higher than the ten-year average earnings volatility of 8.5%.”

Admittedly, the more recent 8-quarter average of ~11.75% is closer to what the overlap is currently pricing at, so yes, MRVL has shown it can make big moves. But stacking a near 20% rally on top of an already extended chart? This is a much more difficult question.

Meanwhile, the forward price-to-earnings ratio has risen to nearly 45 times, a 10-year high for this name. And critically, it comes with the most aggressive revenue and earnings growth expectations we’ve seen over the same period. Installation requires execution. There is no margin for disappointment on these floors.

Here’s my position: I want to be exposed to MRVL, but I want to get paid to wait for it at a better level. If the stock pulls back or treads water after earnings, I want to own it at a discount. If it breaks, I collect the premium and move on.

• Sell ​​MRVL on June 5 for $3.60 at the weekly 162.5 Put. The strike is significantly below current levels and provides a comfortable buffer.
• Breakeven on the downside: ~$158.90 at expiration.
• Maximum profit: full $3.60 bonus if MRVL remains above $162.50 by June 5.
• Skill Level: Medium

Stop yield: >2.2% in ~11 days. A 70% annual return is good if you can get it; In the worst-case scenario, you’d own the stock 19% lower. Our system highlights that a similarly structured trade on MRVL has historically had a very high win rate (see below).

This is a structure with a high probability of making a profit. You’re not betting on a boom quarter – you’re just betting that MRVL won’t drop sharply and stay down. Given the basic background, this is a reasonable view.

But the basic discipline here is simple: Don’t buy it as a profit just because the story is good. Buy the weakness. Don’t chase after power.