9:00am (EST)
The bulls continued their bounce off Tuesday’s lows despite a sluggish start to power their way back above key support levels on Wednesday.
The Dow added 80 points, or 0.7%, to close at 12,560. The index made a steady climb back above the 12,500 level and will look to challenge 12,700-12,800 by week’s end. The bears are targeting 12,350.
The S&P 500 advanced 12 points, or 0.8%, to finish at 1,340. The 1,350 area will need to be cleared if the bulls want to test 1,375 again while 1,325-1,300 is serving as short-term support.
The Nasdaq led the charge higher by surging 32 points, or 1.1%, to settle at 2,815. Tech made a strong move back above 2,800 after holding support on Monday and Tuesday.
SodaStream International (SODA, $53.99, up $10.26) had an outstanding day as shares surged nearly 24% after the company announced better-than-expected earnings. Revenues increased 50% to $64 million and here were our thoughts 6 months ago (quotes from that day):
From November 5, 2010:
“We wanted to profile one stock this morning before we hit the Members Area which could be worth watching going forward. SodaStream International (SODA, $30.00, up $5.88), which makes home beverage carbonation systems, surged 25% yesterday after an initial public offering (IPO) on Wednesday.
The company raised $110 million in its debut by selling 5.5 million shares which were priced at $20 a share and the top end of its estimated range. The underwriters have a 30-day option to buy up to an additional 800,000 shares to cover any excess demand which could raise another $20 million.
We aren’t 100% sure if this stock is the next Green Mountain Coffee Roasters (GMCR, $33.88, down $0.41), which revolutionized the coffee industry with its k-cups and made our life easier, but there are some similarities.
SodaStream’s home beverage carbonation system allows you to convert tap water into carbonated soft drinks and sparkling water. Green Mountain made coffee making easy selling the machines that their simple k-cups go in. SodaStream (also) sells the machines and the mix which is “a smarter way to enjoy soda” according to the company’s slogan.
You can choose from 4 different home soda makers that range in price from $79.95-$199.95. The refills cost $4.99 and can make 12 liters of soda, or 33 cans. The machines are being sold in thousands of stores and if they are selling well, the stock could be headed for further gains.” (END)
Well, although we predicted higher prices for SodaStream, we blew it on the options. We did an update a few weeks ago on SodaStream for our Weekly Wrap and said the options were thinly traded. Open interest has been low, until yesterday, which can cause wide bid/ask prices. We mentioned both of these issues in our update.
Although the company’s earnings announcement didn’t show up on our radar until after the fact, there was a trade that would have returned a windfall overnight.
Shares were just under $44 going into Tuesday’s close and a 10% move, which we like to factor in for our earnings trades, would have pushed SodaStream up towards $50.
This would have led us to look at the 50 call strike prices for May and June although the May options expire this Friday. Both options did really well.
The May 50 calls (SODA110521C00050000, $4.00, up $3.60) were going for 40 cents and surged 900% yesterday. Open interest was under 1,000 contracts going into Wednesday but traded nearly 3,000 contracts. The June 50 calls (SODA110618C00050000, $6.20, up $4.10) traded nearly 1,000 contracts versus 3 times open interest.
As you can see, the power of options is incredible. A $400 trade on 10 contracts was worth $4,000 in less than 24 hours. Now you know why we spend countless doing research.
We were also smiling when we heard Jim Cramer nearly quote us word-for-word when he said SodaStream could be the next Green Mountain Coffee Roasters.
Well, it’s something we already knew because SodaStream basically copied GMCR’s business model except they did it with soda. Brilliant!
We have a lot to cover in our Members Area today and futures are pointing towards a higher open. Dow futures are up 50 points, S&P futures are up 5 points, and the Nasdaq futures are up 8 points. Subscribers, check for the updates.
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