Closing the 3D Systems Corporation (DDD) Short

I closed out my 3D Systems Corporation (DDD) short position early last week. The trend has become unreliable.

As I pointed out on March 5, the downward trend was imperiled by Stratasys’s (SSYS) strong earnings. Further, rumors of an acquisition have been floating around.

Owners of manufacturing companies and conventional printer companies would like to get in on this trend, and may consider $3 billion a small price to pay for DDD’s patent portfolio, plus its future earnings. And, with a larger company’s capital at its back, DDD would no longer need to resort to equity-financed acquisitions, which put it at the risk of such reflexive boom-busts as we have just seen.

My March 2012 puts were saved in the nick of time on March 15, closing in the money before expiration. In retrospect, these were the wrong tool to use; I must remember to use puts further out into the future to avoid such a high time-value depreciation.

My May 2012 puts fared much better, and made a many-fold profit. In addition, my short equity position generated a substantial profit.

The negative trend may continue a little longer, but we are currently in a test period. There have been numerous articles recently highlighting the DDD’s fall in stock price as a bargain. This kind of positive perception is not what I would expect in a typical reflexive bust. I would expect the perception to turn increasingly more negative as the stock falls, until a true capitulation point.

I cannot predict what will happen with DDD until I see the next earnings report. If that shows a disappointing low earnings growth figure, then we will have proof that the negative perceptions have affected the fundamentals via the stock price, and it may be safe to re-engage in a short until the stock capitulates.

Given that the next earnings is not due for another couple of months, I cannot justify taking any action on DDD. If the stock reaches levels of ~$20/share, I would consider purchasing it as a long position, but until then, I am simply watching.

For more updates on my portfolio, check my blog


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