3D Systems Corporation (DDD) Options Catch Fire on M&A Chatter

Fresh M&A chatter has 3D Systems Corporation (DDD) charging up the charts

Kirra Fedyszyn
Jan 19, 2017 at 12:33 PM
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3D Systems Corporation (NYSE:DDD) is on fire today, up 5.8% at $17.04, thanks to a fresh round of takeover chatter that places Dow component General Electric Company (NYSE:GE) as a possible buyer, according to Trade-Alert. Amid this excitement, stock volume is running in the 98th percentile of its annual range, and DDD options are changing hands at breakneck speeds.

Digging right in, DDD options are trading at nine times the expected rate for this point in the day, with about 35,000 contracts on the tape -- putting total options volume on track for a 52-week high. Leading the way so far is the May 14 put, where a block of 8,000 contracts appears to have been bought to open this morning. On the call side, meanwhile, it looks as though speculators may be purchasing new positions at the February 18 call and the January 2017 17-strike call.

Call buying has been the prevailing trend among DDD options traders in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has seen more than six calls purchased for every put over the past 10 sessions. The resulting call/put volume ratio of 6.12 sits higher than 95% of the past year's readings. Plus, DDD's Schaeffer's put/call open interest ratio (SOIR) of 0.48 is docked at an annual low, indicating near-term traders haven't been more call-skewed anytime in the last 12 months.

Notably, near-term options buyers could be scoring a bargain on DDD. The stock's Schaeffer's Volatility Index (SVI) of 48% is seated in the low 11th percentile of its annual range, indicating historically low volatility expectations are being priced into DDD's short-term options. What's more, the equity has a Schaeffer's Volatility Scorecard (SVS) of 79, meaning the shares have made bigger moves on the charts than the options market has priced in over the past year.

All of this call-heavy action doesn't necessarily mean traders are optimistic, though. Nearly 21% of DDD's total float is currently dedicated to short interest, representing over two weeks' worth of buying power, at the stock's average daily pace. And with the top open interest position among all DDD options residing at the out-of-the-money January 2017 20-strike call, it's reasonable to assume some recent call buyers have in fact been short sellers using options to hedge their bearish bets.

Analysts haven't been overly taken with DDD, either. Out of 13 brokerage firms tracking the security, only two recommend buying the shares. Plus, the consensus 12-month price target of $15.55 sits at a roughly 9% discount to DDD's current levels.

This pessimism seems rather undeserved, considering DDD has tacked on a whopping 165% year-over-year, with the shares benefiting from several bounces off support at the 50-week moving average since last May. Should analysts and traders begin abandoning their bearish positions, 3D Systems Corporation (NYSE:DDD) could be set to run higher on the charts.

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