3D Systems Corporation (NYSE:DDD), a manufacturer of 3D printing machines, was a virtual printing press for bullish investors in 2013. Following 2014’s not-so-small, but far from atypical bump in the road that most growth stocks travel at some point, shares of DDD have turned an important corner for bulls in 2015.
As one of the once-hot technology’s two heavyweights, the other being Stratasys, Ltd. (NASDAQ:SSYS), shares of DDD gushed green piles of percentage points upwards of more than 140% as Wall Street fell in love and then literally pimped its infatuation out to investors.
For those tranquilized by 3D Systems’ siren song and failed to exit shares of DDD, 2014 was a buy-and-hold investor’s worst sort of nightmare. From the get-go and the next 12 months as traders become enamored with the next big, big thing in 2014, i.e. biotech, wearables, DDD stock cratered by nearly 65%.
The good news is on the heels of 2014’s dismal red ink thrown all over DDD shares, the stock has put in a key technical low. For investors agreeable to this proposition, the opportunity to potentially print a double in the trading account without requiring DDD stock to double; simply hold one together, is upon us.
3D Systems Stock Technical Picture
Shares of DDD have indeed come a long way. In examining the weekly chart, 2014’s retreat in 3D Systems’ stock price has established a double bottom that’s level with DDD’s early winter lows in 2013 and right in front of its massive run-up.
What makes this double bottom in DDD stock more attractive technically is the recent undercut of the 2013 low and three full tests. The interpretation is it’s allowed a fair amount of shaking out traders in DDD trying to play earlier double bottom attempts over the past four months.
That said, shares of 3D Systems could now be readying to turn higher.
Supporting the bullish reading of DDD’s charting tea leaves, the bottoming action has allowed a couple downtrend lines to be broken. That’s a good sign, as downtrends ultimately need to be overtaken if an uptrend is to establish itself.
Finally, the constant testing of support has let DDD shares quiet down with underlying stock volatility just removed from its all-time-lows in the $30s. Stocks are often said to need quiet bases to be built, away from prying eyes, before a meaningful low can be established.
In that regard, DDD might not be perfect — but it has a lot going for it.
DDD Options
What DDD also has going for it are its listed options. For a stock like DDD that historically moves around a good deal more than it is right now, option premiums are reasonably priced. Actually, DDD option prices are bid above 3D Systems stock volatility. Theoretically, this means premiums for a purchase like a long call are expensive.
However, this disparity is because traders like myself anticipate DDD’s underlying share volatility will turn higher and revert back towards its mean. Additionally, current premiums in the low $40s for calls are reasonable compared to historic implied readings. A long call purchase can certainly make sense for this situation.
DDD August Long Call Strategy
In reviewing DDD’s option board, consideration of the discussed technical bottom and a return on investment goal for a double or better, the Aug $30 call for $2.10 is attractive. The risk chart supplied shows how this DDD long call contract can double in price if 3D Systems stock rises just above its purchased expiration breakeven price of $32.10 on May expiration.
Not only is a double price in DDD stock below its recent February high of $33.17, but if DDD can rally sooner; those gains would accrue at lower levels. Also attractive, while a loss is limited to $2.10 or less than 7.5% of the share price, a technical stop could help reduce losses to about 50% or $1.05, in the event the double bottom fails to hold.
But and more optimistically, if 3D Systems stock is cooperating in the near future displayed here; there would still be three months remaining to continue printing money, including maybe a triple or more in DDD.
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. As of this writing, he holds no positions in any of the aforementioned securities in his personal or managed family accounts but may initiate, for better or worse, a position in two or more business days following the publication of this article.
