SodaStream International (SODA) closed Monday's trading session at $45.08. In the past year, the stock has hit a 52-week low of $27.60 and 52-week high of $79.72. SodaStream stock has been showing recent support around $39.00 and resistance in the $46.80 area. In fact, SodaStream has been generally trading in the $28.50-$44.70 range since the middle of August, with the lows trending up since the last week of November.
Technical indicators for the stock are bullish, as both price and volume have increased ahead of an earnings announcement before the market open on Feb 29. For a hedged play on SodaStream, take a look at the following trades:
1. OTM Covered Call: The SODA Apr '12 $47.50 buy-write can be executed for a net debit of approximately $41.20. That is also the break-even stock price for this trade. This covered call has a duration of 54 days, provides 8.6% downside protection and an assigned return rate of 15.3% for an annualized return rate of 103.4% (for comparison purposes only - no commissions). The risk to the covered call trade is that the investment will continue to lose money until the stock price reaches $0. On the flip-side, if SodaStream surprises and the stock shoots higher, this trade will cap profits at the strike price of $47.50.
2. Deep ITM Covered Call: The SODA Apr '12 $40.00 buy-write can be executed for a net debit of approximately $37.40. That is also the break-even stock price for this trade. This covered call has a duration of 54 days, provides 17% downside protection and an assigned return rate of 6.95% for an annualized return rate of 47% (for comparison purposes only - no commissions). Notice you get almost half the return and double the downside protection in comparison to the trade above, but the return is still very respectable and the break-even price is below the $39 support level.
3. Collar: Combine the SODA Apr '12 $42.50 buy-write with a long SODA Apr '12 $37.50 put for a net debit of approximately $41.30. That is also the break-even stock price for this trade. The collar trade has a duration of 54 days, provides 8.4% downside protection and an assigned return rate of 2.9% for an annualized return rate of 19.6% (for comparison purposes only - no commissions). While this trade provides a lower return and downside protection than the covered calls, it will cap losses at a stock price of $37.50, where the trader loses $3.80 per contract or 9.2% on the initial investment. This is a good trade to make if the investor is bullish, but nervous about the stock gapping down below $37.50.
A lower-cost hedged play for SodaStream would use a longer-term call option in place of the covered call stock purchase, such as a LEAPS option. The investor creates a calendar spread by selling a shorter-term call option for premium and downside protection. However, in this case, I would not recommend a LEAPS calendar spread due to the lack of open interest in deep ITM SODA Jan '13 call options.
SodaStream International does not currently pay a dividend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.