Amid the recent seesaw action in stocks, 3-D printing companies were taken down a couple notches. The latest round of selling pressure came following a worse-than-expected earnings report from 3-D Systems (NASDAQ:DDD) that caused the stock to fall as much as 20% in Monday’s trading session.
While the latest bout of liquidation was sufficient to knock DDD and fellow competitor Stratasys (NASDAQ:SSYS) back below key support levels (including their 50-day moving averages), Proto Labs (NASDAQ:PRLB) — the little guy of the 3-D printing space — escaped the selling with uptrend firmly intact.
Click to EnlargeThe past few weeks of profit-taking allowed PRLB to close its gap from Feb. 13 and return once again to its rising 20-day moving average. Tuesday’s bullish hammer candle sparked the current rebound, which may well raise the stock back above $50 in the coming weeks.
With PRLB currently boasting the strongest chart of the bunch, it remains the best play for traders looking to acquire bullish exposure to this up-and-coming industry. While aggressive traders may look to buy calls or call spreads to prepare for the next up-leg in the stock, short puts offer a higher-probability alternative for the more conservative among us.
As a reminder, selling a put option obligates you to buy 100 shares of the stock at the strike price. Your max profit is limited to the initial premium received and will be captured as long as the put expires out-of-the-money. To increase the probability of winning, most traders sell out-of-the-money options that expire within the next month or two. Staying close to expiration also exploits the higher rate of time decay associated with short-term options.
With PRLB currently trading around $46, you could sell the April 40 put for $0.95 or better. Provided PRLB doesn’t fall more than about 13% by April expiration the put will expire worthless, allowing you to pocket the entire $0.95.
If you’re unwilling to buy shares at $40, you could simply buy to close the put if it moves in-the-money before April expiration. Your estimated loss would be around $200 per contract.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.