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Options Bears Circle DDD Stock Before Earnings Release

DDD put buying has been more popular than normal

Aug 1, 2017 at 1:49 PM
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Yesterday we discussed the huge volatility expectations priced into FireEye options ahead of the company's earnings release tonight. Turning to tomorrow's earnings schedule, options traders are also pricing in a major move for 3-D printing stock 3D Systems Corporation (NYSE:DDD). With the company set to report earnings after the close tomorrow, the options market is pricing in a 13.9% daily post-earnings move for DDD stock, compared to its average swing of 9.9% in the session after reporting, going back eight quarters. 

On a closer look, it seems many are taking a bearish stance on 3D systems stock. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 1.87, which ranks in the 89th annual percentile. In other words, put buying has been more popular than normal, relative to call buying. 

This put-skew in large part is due to heavy action at the November 15 put, where more than 10,000 contracts were added to open interest during the past two weeks -- by far the largest increase of all DDD options. Data from the major options exchanges confirms almost exclusive buy-to-open activity here, meaning traders have been betting on the equity falling below $15 in the months ahead. 

Even call traders have shown bearish tendencies. Specifically, the August 18 call saw the largest increase in open interest among traditional front-month options during the past two weeks, but it looks like this was mostly due to sell-to-open activity. So, many are speculating on the $18 acting as a short-term ceiling for 3D Systems shares. 

This skepticism is apparent outside the options pits, too. First of all, DDD is heavily shorted, with more than one-fifth of its float sold short. It would take these bears more than two weeks to cover their positions, going by average daily volumes. And analysts are mostly downbeat, with 10 of 12 handing out "hold" or worse recommendations. Moreover, the stock's average 12-month price target of $16.29 sits below current price levels. 

Speaking of DDD's price action, it's been a roller coaster ride this year. Back in May, 3D Systems stock soared to a two-year high, but has since given back almost all those gains, last seen trading near $16.86. Still, the shares appear to be on solid footing from a technical perspective, holding support from the 200-day and 320-day moving averages, while sporting a year-to-date gain of more than 27%. 
 

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