After handily beating earnings on May 10, shares of Sodastream International Ltd (NASDAQ:SODA) are approaching resistance, and renewed takeover chatter and short-term momentum will lead SODA to a breakout.
Click to Enlarge Now, the $22.30 level looms as the last level of resistance, with SODA stock piercing that level yesterday before closing right on it.
A convincing move past this area could bring in the short-term momentum and breakout players, driving shares higher.
Looking out further, a break past $22.30 in Sodastream could fill the gap with a potential move to the upper end at $27.50.
Click to Enlarge Certainly there is plenty of room to run if SODA does breakout.
More importantly, the big option players are positioning in a large and aggressive manner in Sodastream.
Yesterday saw huge call volume (18 times the average), with over 7,000 calls traded versus the average daily call volume of only 410. This large call buying many times portends a dramatic move in the stock, as informed players position in a big way.
And most of the volume was in the SODA August $25 calls, with over 5,000 contracts traded versus zero open interest. Earnings are due Aug. 3, so perhaps the big call buyer is banking on another earnings beat.
What’s more, the recent acquisition announcement of WhiteWave Foods Co (NYSE:WWAV) by French food giant Danone renewed takeover chatter in the food and beverage space. And rumor has it Sodastream’s is a takeover target for Pepsico, Inc. (NYSE:PEP).
So with SODA poised for a technical breakout and with big call buyers surfacing, I think a simple long bull call spread to follow along with the big call buyers makes sense.
SODA Stock Options
Buy the SODA August $23 calls and sell the SODA August $25 calls for 70 cent net debit. These expire Aug. 19.
The maximum risk on the trade is $70 per spread if SODA closes below $23 on August expiration, with the maximum gain if $130 per spread if SODA is above $25 on August expiration.
By risking $70 to gain $130, the return on risk for this trade is 185%.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at tbiggam@deltaderivatives.com.
