3D Systems Corporation (DDD): A Golden Opportunity for Option Bulls

3D Systems Corporation (NYSE:DDD) has been running up the charts, but plenty of skeptics have yet to climb on board

Oct 5, 2016 at 11:02 AM
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Contrarian traders are constantly looking for stocks with an edge, whether that be an outperforming equity that's surrounded by skepticism both in and out of the options arena -- or, conversely, an underperformer that Wall Street has yet to give up on. Here at Schaeffer's, our three-tiered methodology -- known as Expectational Analysis® -- does just that. Recently, our Senior Quantitative Analyst Rocky White ran the numbers, and 3-D printing stock 3D Systems Corporation (NYSE:DDD) stood out among a number of stocks as a potential contrarian play for bullish traders.

Technically, DDD stock has turned in an exceptional performance in 2016, boasting a nearly 109% year-to-date advance, last seen at $18.13. More recently, the equity has outperformed the broader S&P 500 Index (SPX) by 21.7 percentage points over the past three months. Amid this uptrend, the shares have filled their early May bear gap -- suggesting a potential level of support has been formed in the $17.70-$18.00 region.

DDD daily chart october 5

Nevertheless, skepticism is steep toward the outperformer -- which could create tailwinds for DDD down the road. In the options arena, the stock's top-heavy 10-day call/put volume ratio of 2.09 at International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks just 9 percentage points from a 52-week peak. In other words, puts have been bought to open over calls at a near-annual-high clip in recent weeks.

Echoing this put-skewed bias is DDD's Schaeffer's put/call open interest ratio (SOIR) of 2.19. Not only does this show that puts more than double calls among options set to expire in three months or less, but it rests higher than 94% of all comparable readings taken in the past year. In other words, short-term speculators have rarely been as put-heavy toward DDD as they are now. This lofty accumulation of puts could provide a near-term foothold for the security, as the hedges related to these bets unwind.

This glass-half-empty approach has spilled outside of the options arena, as well. Although short interest declined slightly in the most recent reporting period, it still accounts for a whopping 25% of DDD's available float. Considering it would take nearly two weeks to cover these shorted shares -- at the stock's average pace of trading -- a continued capitulation from bearish bettors could translate into a fresh burst of buying power.

Additionally, DDD seems ripe for a well-deserved round of bullish brokerage attention. Currently, 10 of 11 covering analysts maintain a "hold" or "strong sell" suggestion, while the average 12-month price target of $14.88 stands at a nearly 18% discount to the stock's present price. Should DDD continue to outperform, upgrades and/or price-target hikes could help fuel the equity's fire.

Now appears to be a prime time for premium buyers to strike, too. For starters, the stock's Schaeffer's Volatility Index (SVI) of 47% ranks in the 4th annual percentile, meaning low volatility expectations are priced into DDD's near-term options. Plus, 3D Systems Corporation's (NYSE:DDD) Schaeffer's Volatility Scorecard (SVS) is docked at 87, suggesting the options market has historically underpriced DDD's ability to make big moves on the charts over the past year -- an advantage to options buyers.

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