Following earnings, 3D Systems (NSYE:DDD) showed it can print better than it can forecast profits, and on the price chart, there’s confirmation of an improving uptrend. But for bullish investors looking to position in a hotly contested and volatile DDD stock, an out-of-the-money call spread designed to print big risk-adjusted profits remains a strong choice.
Let me explain.
Wednesday was more than a nice step in the right direction for DDD stock off and on the price chart. 3D Systems spiked more than 32% on the session after crushing Street profit forecasts of a penny with actual earnings of 6-cents-a-share.
DDD’s sales were also a crowd-pleaser. Revenues of $176.6 million upended analyst views of $165.9 million. Additionally, 3D Systems announced a partnership with machine manufacturer Georg Fischer to create integrated solutions machinery.
The reaction by investors was the strongest in shares of DDD since 2011 and Jan. 2014 when DDD stock ran up to all-time-highs. Admittedly, it’s likely that type of momentum won’t continue. Nevertheless, the price action does appear to be strong technical confirmation of a much larger bullish run for 3D Systems investors. And it’s incentive for a dismissive analyst community and sizable bear population of 33% short interest to rethink their positions in DDD stock.
DDD Stock Weekly Price Chart
Looking at the extended weekly chart of DDD stock over the past three years, a volatile and lengthy base-building process appears to be in the rear-view mirror. And that’s more good news for bullish investors in 3D Systems. Wednesday’s supportive bid has reaffirmed 2018’s uptrend by establishing a new high while breaking above a formidable band of resistance.
The technical outlook for DDD stock is undeniably bullish, especially when you consider that its chart indicates a key 50% retracement level, 200-week simple moving average and prior symmetrical triangle breakout. Our upbeat forecast doesn’t preclude some modest backing and filling near-term. And given DDD’s short-interest, I’d say it’s almost inevitable.
However, for those with longer-term ambitions, new three-year highs are expected in the coming months as part of a continued bull market in DDD stock.
DDD Stock Bull Call Spread
For like-minded traders that see new intermediate highs for DDD, I’d once again suggest an out-of-the-money bull call spread. Back in March, this type of limited and reduced risk spread was laid out for InvestorPlace readers. Following Wednesday’s price spike, the vertical has gone fully in-the-money for a payoff of $2.45 and return of 445%.
Reviewing the options market in DDD stock, one combination currently favored is the Feb $21 / $25 call vertical. With shares at $17.96, the spread is priced for 85 cents. This limits investors’ exposure to DDD’s often-volatile shares to a less-rough-and-tumble 4.75%. At the same time, this position still allows for solid profits of $3.15 to be captured over the next several months.
Of course, the strike placement in this options strategy will require shares of 3D Systems to move substantially higher by some investors’ measures. But with two additional earnings cycles built into this vertical and if readers bother to take another appreciative look at the DDD stock chart, that’s far from a leap of faith, and more an approximation of the continued building blocks of an uptrend in motion.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in 3D Systems stock and its derivatives. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.