3D Systems Corporation (DDD) Bounces From 3-Year Low, Burns Bears

Pre-earnings bears were ready to cash in, until 3D Systems Corporation (DDD) suddenly reversed course

Nov 4, 2015 at 11:30 AM
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Heading into the company's earnings event this morning, traders were betting on 3D Systems Corporation (NYSE:DDD) to continue its losing ways. As of Tuesday's close, the shares had given back over 68% in 2015, leading to an overwhelming interest in puts. Specifically, DDD's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.48 marks an annual peak. In other words, not only has put buying outpaced call buying lately, but it's done so at the highest rate in the past year. 

And when the opening bell rang this morning, it looked like these traders hit the jackpot. The 3-D printing stock plummeted to a three-year low of $10.01 after releasing quarterly numbers. However, the shares quickly reversed course after meeting up with this round-number level. At last check, the stock had surged 13.2% to $11.82. 

Looking back, most of the stock's pre-earnings bears targeted the November 10 put, which added the most open interest of any front-month strike over the past two weeks. Data from the major options exchanges confirms substantial buy-to-open activity at this strike, meaning traders were betting on DDD breaching the round-number $10 level before front-month options expire at the close on Friday, Nov. 20. Instead, it appears this level served as support

To make matters worse, it looks like these traders were paying a pretty penny to place their bets. This is evidenced by DDD's Schaeffer's Volatility Index (SVI) of 101%, which stands at an annual high. In other words, ahead of earnings, the equity's near-term options were pricing in their highest volatility expectations of the past year. 

As for today, DDD options are trading at seven times the average pace. The weekly 11/6 series is in high demand, and it looks like bears could be at it again. Namely, there's potential buy-to-open activity at the weekly 11/6 12-strike put, as traders try to profit before the contracts expire at the end of this week. 

Elsewhere, DDD's pre-earnings bears aren't alone in their misery. Nearly 32% of DDD's float is sold short, representing almost three weeks' worth of buying power, at average daily volumes. 

Looking to the Street, analysts share these traders' skepticism. Of the 17 brokerage firms with coverage on 3D Systems Corporation (NYSE:DDD), 14 say it's a "hold" or worse. 

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