Overall market was in a good mood earlier this morning. Even Goggle (GOOG) was on a tear before giving up all its gain by day-end. I checked the stocks on my watch list and I came across an article on Marvell Technolgy (MRVL) about a Deep In The Money (DITM) option play.

According to the author, DITM option play is good for beaten-down growth stock. Marvell Technology has been in the 52-week low ($15.25) range for the past couple of days. On May 17, 2007, the company reported its revenue rose 22% over a year ago but missed Wall Street revenue expectation of 24% increase.

I’ve been following MRVL Stocks for a while and it has been a good performer up until last year when the news on accounting scandal involving backdating options surfaced. Apple (AAPL) suffered from the same misfortune but has recovered quickly.

Anyway, regarding the DITM option, here is a few criteria the author suggests:

1. Option should be less than $1 in premium

2. It should expire no earlier than 4 months (4 -7 months)

3. Beaten-down growth stock

Holding options expiring in 4-7 months with less than $1 premium seems like a safe play. I entered into the option play this morning 15 minutes after the market opened. MRVL opened at $15.55. I bought 5 Nov 07 12.50 (ULJKV) call at $3.90. That’s about 5 1/2 months to expiration. The premium in this case $12.50 (strike price) + $3.90 (price I paid for the DITM option) – $15.60 (stock price at the time of purchase) is $0.80.

My break-even points is $16.40 ($12.50 strike price + $3.90 I paid for the option). I omit the commission from the equation for easier explanation. My play satisfies Criteria 1 and 2. We’ll find out whether this play will satisfy Criteria 3.

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