Buyout Buzz Drives Traders to 3D Systems Corporation (DDD) Options Pits

3D Systems Corporation (DDD) could be the target of a takeover

Jan 9, 2017 at 11:10 AM
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3D Systems Corporation (NYSE:DDD) has soared over 9% to trade at $15.77 amid renewed takeover speculation. The unsubstantiated M&A chatter has also sent traders into the stock's options pits, where calls are crossing at 15 times the usual intraday rate. In fact, volume on call options is on track to end the session at a 12-month high.

The weekly 1/13 15- and 15.50-strike calls are DDD's most active options so far. According to Trade-Alert, the activity is likely of the buy-to-open sort. In other words, today's buyers foresee shares of the 3-D printing firm extending their gains through this Friday's close, when the series expires.

This is business as usual for 3D Systems options speculators. During the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open almost twice as many calls as puts. The resultant call/put volume ratio of 1.96 outranks 82% of comparable readings from the past year. Echoing this focus on calls, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.55 rests in the low 5th annual percentile, meaning short-term traders have rarely been as call-heavy as they are now.

That said, ulterior motives could be driving call buyers. With over one-fifth of DDD's float sold short -- which would take two weeks to cover, at the stock's average daily volume -- short sellers could be scooping up calls to hedge against sharp upside moves, not unlike the one we're seeing today. Meanwhile, unhedged shorts may be feeling forced to cover, translating into fuel for the equity's fire.

Another potential source of fuel are bearish analysts. Specifically, among the 13 brokerage firms tracking DDD, 11 have handed out a "hold" or a "strong sell" recommendation. If the stock can keep up its positive momentum, a round of upgrades could create even more tailwinds.

Technically speaking, however, 3D Systems Corporation (NYSE:DDD) has had difficulties gaining ground on a consistent basis. In recent months, the stock has been hemming and hawing between $12.50 and $16. Plus, with the equity's 14-day Relative Strength Index (RSI) approaching overbought territory -- last seen near 64 -- it might not be too long before DDD hits the proverbial pause button.

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