3D Systems, Stratasys Options Data Reveals Prime Buying Opportunity

3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) options are attractively priced from a volatility perspective

Feb 9, 2017 at 11:38 AM
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For any trader who's held shares of 3-D printing stocks 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS), it's been a wild ride in recent years. Both stocks surged to all-time highs back in January 2014, with DDD peaking at $97.28, and SSYS at $138.10. The shares have fallen off precipitously, though, with 3D Systems last seen at $16.93, and Stratasys at $20.34. However, both stocks have performed well so far in 2017, and data suggests options traders may want to consider these equities. 

DDD and SSYS are in Strong Technical Positions

First of all, DDD has so far added 27.4% in 2017, including a 2.5% gain today. In fact, the shares have more than doubled in value going back 12 months, thanks in part to recurring takeover talk. As for SSYS, the stock is up 23% year-to-date, adding 3.2% today amid news the company has entered into an additive manufacturing partnership with Dassault Systemes.

SSYS shares are also bouncing off the 38.2% Fibonacci retracement of a decline from their 2016 highs to December lows, after a period of consolidation. This level served as support on multiple occasions last year, and if the price action is the same this time around, we could see the stock move up to the $23-$25 region. 

stratasys stock

Inside the Options Pits

It seems like near-term options traders are positioning themselves for an upside move from both stocks, too. Specifically, DDD boasts a Schaeffer's put/call open interest ratio (SOIR) of 0.50, which is only 8 percentage points from a 12-month low, while SSYS has a SOIR of 0.43, ranking in the 2nd annual percentile. In other words, traders targeting options expiring within three months are almost more call-skewed now than at any point in the past year. 

Yet, this apparently bullish bias has come amid unusually low interest in the stocks. At the moment, total open interest for both resides in just the 4th annual percentile. This is even more odd when you consider it's a great time to target short-term options on DDD and SSYS. Shares of the former sport a Schaeffer's Volatility Index (SVI) of 42% -- in the 2nd annual percentile -- while the latter has an SVI of 43%, just 1 percentage point from a 52-week low. Said differently, the options market is pricing in unusually low volatility expectations for each stock's options at the moment. 

Short Covering, Upgrades in Store?

Finally, there are two other reasons to believe 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) could be heading higher in the weeks ahead. First, short interest has been falling fast on both stocks, yet these bears still control a week's worth of buying power on each, going by average daily volumes. If this short-covering trend continues, it could provide tailwinds for DDD and SSYS. Plus, the majority of analysts covering each stock maintains bearish ratings, suggesting a round of upgrades is also possible. 

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