The bullish fever seizing stocks spread to all corners of the Street last week. The broadening rally even seeped into beaten-down, left-for-dead industries like 3-d printing stocks.
Of the two most popular 3-d printing stocks — 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) — DDD looks the healthiest (in a least sickly kinda way) so we’ll focus our efforts on building a trade there.
The recent pop in DDD stock was sufficient to lift it above its 50-day moving average for the first time since July of last year.
Time will tell if the bulls can build on the momentum, but it’s a start if nothing else.
In addition, DDD has adopted a more neutral tone lately as it attempts to carve out some type of bottom. While the upcoming earnings release is sure to add some fireworks to the mix, the recent action in the stock provides enough promise to keep the bulls interested.
Alongside the rally in the broad market we’ve seen implied volatility take a nosedive, shrinking option premiums across the board. While such behavior benefits traders already, short volatility increases the difficulty of finding new opportunities for selling overpriced options.
Fortunately, option prices in DDD stock remain elevated in anticipation of its upcoming earnings announcement on Feb. 26. Bottom fishers ought to lean toward selling options in some fashion to take advantage of the pumped up premiums.
DDD Stock Options Beckon
The elevated implied volatility and cheaper price tag of DDD stock suggest a short put play is a good fit for traders willing to bet on a bottom. Sell the Mar $25 put for 52 cents or better.
The max reward is limited to the initial 52 cents and will be captured if DDD remains above $25 by expiration. Consider buying back the put for around 10 cents to exit the trade early.
By selling the put you obligate yourself to buy the stock at $25. Would-be buyers of DDD could ride to expiration and allow assignment, then consider selling covered calls. If you’re not a fan of tying up the capital required to buy shares then simply buy back the put to avoid assignment if the stock reaches the $25 strike price.
In timing the entry, consider waiting for until DDD starts to rise again. It’s down a fair amount in early trading today so wait for the current pullback to terminate before pulling the trigger.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
