Stocks quoted in this article:
The 20 stocks listed in the table below are the S&P 400 MidCap Index (MID) components that have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest is 3D Systems Corporation (NYSE:DDD), as one trader bets on a high-volatility breakout over the next three months.
Just after midday, 3D Systems Corporation was the subject of an intermediate-term volatility play. Specifically, it appears as though a speculator purchased a block of 1,000 November 49 puts at $5.65 each, and simultaneously bought a matching block of 1,000 November 49 calls for $3.85 apiece. Open interest exceeds volume at both strikes, but a review of the historical volume data suggests this could be the initiation of a new long straddle on DDD.
If so, the net debit on the play was $9.50. This means, at expiration, the straddle buyer will be able to net a profit if DDD is trading above the upper breakeven at $58.50 (strike price plus net debit) or below the lower breakeven at $39.50 (strike price minus net debit). In today's session, DDD is off 0.4% to trade at $48.73 -- nearly flat with the focus strike. Based on the stock's current price, the straddle buyer needs the shares to either rally more than 20%, or fall more than 18.9%.
Though the November 49 put carries less than one point of intrinsic value, it's considerably more expensive than its call counterpart. That's because the November 49 put was pricing in implied volatility (IV) of 57.5% at the time of the spread transaction, compared to IV of 38.0% for the November 49 call. This dramatic skew suggests speculators are placing greater odds on DDD breaking out to the downside than the upside over the next three months.
While the company has yet to confirm an official date, third-quarter earnings from 3D Systems Corporation are typically released in late October. These quarterly events have served as the catalyst for big moves in DDD before, and today's straddle buyer could be looking for history to repeat itself. For example, after the firm's April 2013 announcement, DDD notched a gain of 20.7% in the ensuing week. On the other hand, the July 2014 results preceded a one-week slide of 14.8%.
Technically speaking, now is an opportune time to open a straddle on 3D Systems Corporation (NYSE:DDD). The stock has spent the past week in a tight range between the $48 and $50 levels -- a disappointing development for last Tuesday's crop of eleventh-hour call buyers. However, DDD could soon be due for a drastic move out of this sideways channel.