3D printing technology has already had an impact on industrial manufacturing and likely to find many uses among consumers. The price action of many of the largest publicly traded companies have reflected the speculation for the uses of the technology across many verticals and end markets, with some having risen hundreds of percent from their IPOs, only to come crashing down for the better part of 2014.
The two largest market cap companies, 3D Systems (DDD) and Stratsys (SSYS) have had sort of divergent paths, despite both having similar market capitalizations (DDD $5.8 billion vs SSYS $6 billion). What’s interesting is that DDD is down 43% on the year (down 46% from all time highs in Jan), and SSYS is only down 13% (down 15% from the all time highs in Jan). Sentiment has certainly shifted on the higher end towards SSYS also made evident in the disparity of short interest between the two (DDD at 35% of the float vs SSYS at 14%).
Despite DDD’s dramatic under-performance of late, implied vol is at new all time low:[caption id="attachment_44800" align="aligncenter" width="600"] DDD 1yr chart of 30 day at the money IV from Bloomberg[/caption]
For those with directional views, options look attractive for stock replacement, or possibly hedging purposes, but the strikes are hard with only $5 wide strikes above $50.
On the other end of the 3d spectrum is XONE, a $417 million market cap company that sells its machines solely to industrial customers with expected sales only $54 million in 2014. What strikes me with XONE is the 52% short interest, but also that the stock is down 65% from the all time highs made last fall, but that is still up 65% from its February 2013 IPO at $18.[caption id="attachment_44801" align="aligncenter" width="600"] XONE chart Since Feb 2013 IPO from Bloomberg[/caption]
I guess if I were playing who would you rather in this group I would stick with SSYS as I suspect that there are some decent fundamental reasons for the out-performance. But from a purely speculative standpoint, you may get the most bang for your buck among smaller players like XONE that could be an easy tuck in acquisition for a larger player in the space or a hardware company looking to buy vs build.
Options in XONE trade by appointment, meaning they are not active. There is total open interest of 26,000 options with calls out-numbering puts 14,500 to 11,600 puts. The single largest lines of open interest are 2900 of the Sept 30 calls, 1800 of the Nov 30 puts, 1400 of the Sept 35 calls and 1,00 of the Sept 30 puts.
The company will not report earnings again until early to mid November. As with DDD, options are wide, and XONE options prices while near their 52 week lows, are not nearly as cheap as DDD on a relative basis, as should be the case given many factors ranging from market cap to earnings losses to name a couple.
If I were considering a speculative long in XONE, playing for a turn in fortunes with what appears to be hammered down expectations, or some sort of M&A flurry, I would look to take advantage of relatively high skew in options prices to sell a put in order to buy long exposure higher:
Hypothetical Trade: XONE ($29.86) Buy Jan 22.50/35 Risk Reversal for ~20 cents
-Sell 1 Jan 22.50 put at 1.80
-Buy 1 Jan 35 call for 2.00
Break-Evens on Jan Expiration:
Profits: above $35.20
Losses: betwn 22.50 and 35 lose .20, put stock below 22.50 down about 22%
Rationale: I much prefer this structure than buying the stock here as the stock could clearly see a decline to the low 20s on another disappointing qtr and/or guidance. But given the potential for a massive short squeeze on the slightest bit of good news the structure offers unlimited upside. The asymmetric risk reward of those two scenarios means a risk reversal is a better structure than simply being long the stock and having to make a decision lower.
This is not a trade we are doing now, but we will keep on our radar.