(This is an excerpt from an article I originally published on Seeking Alpha on December 27, 2012. Click here to read the entire piece.)
Note to self: next time when analyzing a stock in a downtrend as a potential value play, check for major pending litigation.
{snip}…investors got an awful belated Christmas gift in the form of a jury punishing MRVL for $1.17B based on its conclusion that MRVL infringed upon two patents held by Carnegie Mellon University (CMU). {snip}
Since I never sell in a panic, I am taking a deep breath and taking some time to understand the details of this case and potential outcomes. A lot can happen since the judge in the case will not issue a final ruling until May 1, 2013. In the meantime, investors who chose to cling for dear life can buy puts or sell calls to help themselves sleep at night.
Remarkably, the options volume on MRVL was relatively light given the enormity of the news. Then again, the open interest put/call ratio has remained below 0.50 since May, 2011…{snip}
Putting the stock and options trading together I am guessing investors chose to just dump shares rather than bother hedging them.
This trading also suggests that very few people were bracing for such a poor outcome in the court case. {snip}
In another sign that investors expected a favorable outcome, or at least not a damaging one, MRVL rallied 3.5% the day jury selection began. While there was some intra-day churn when the 10Q was released, MRVL’s bounce from November lows continued for another week.
So now that these legal proceedings matter a lot, there are several scenarios to consider for investors who choose to stick around to hear the final judgement in May.
{snip}
This is an incredibly wide range of potential outcomes, making MRVL’s shares a higher risk than ever. {snip}
Source: FreeStockCharts.com
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on December 27, 2012. Click here to read the entire piece.)
Full disclosure: long MRVL