Dear Momentum Options Subscriber,
Shares of SodaStream International (SODA, $17.31, down $0.03) could be setting up for an explosive move following Wednesday’s earnings announcement. Shares are near the 52-week low of $16.80 that was set in March, and they have been prone to huge price swings following earnings announcements in the past.
Wall Street is expecting a profit of $0.35 a share on revenue of $106 million. In early May, SODA was mum on issuing guidance, as it was — and still is — in the processing of reinventing itself. This was not a good sign. With new cold machines hitting the market, the company will be promoting healthier versions of its products.
Consumers have switched from carbonated beverages, and the company has mostly been considered the number-two brand behind Keurig Green Mountain (GMCR, $76.02, up $0.55), which also announces earnings on Wednesday.
Keurig recently introduced its Keurig “Kold” machine, which will be released later this year. Although the machine was slammed for its price and bulkiness, it did have an impact on SODA shares when the news was announced in May.
SodaStream’s attempt to rebrand itself as a health-conscious maker of sparkling water will be a tall task, and the results will be unknown for some time. SODA’s “new” machine will be able to mix “adult beverages,” and another machine will be able to produce both hot and cold beverages. However, they won’t be ready until next year.
SODA has beaten estimates in the past four quarters, but the company has missed revenue expectations in the last three quarters. This is a negative trend that will likely continue even if the company beats on the top-line number.
The options are relatively cheap on SODA to consider a strangle option trade. The SODA August 19 calls (SODA150821C00019000) are currently at $0.55. The SODA August 16 puts (SODA150821P00016000) are going for $0.60. Together, it would cost $1.10 to take a position in the aforementioned options.
If shares of SODA are above $20 or below $15 by Aug. 21, the trade will at least break even. If shares surge past $21 or test $14, the strangle option trade will double, as the call or puts would be $2.00 in the money.
As far as Keurig Green Mountain, the suits-and-ties are looking for a profit of $0.79 a share on revenue of $1.04 billion. The company has missed expectations in the past two earnings cycles following two previous beats.
The options are a little more expensive on GMCR. The GMCR August 80 calls (GMCR150821C00080000) are currently trading for $2.70. The GMCR August 70 puts (GMCR150821P00070000) are fetching $1.80. Together, this strangle option trade would require a $4.50 outlay, and shares would need to make a run to $85 or a test to $65 for the trade to make a profit.
GMCR may be more of a Wall Street favorite than SODA, but the options in SODA look like the better risk/reward setup for a possible earnings trade. However, I am not electing to take a position at this time.
In afternoon trading, the Dow is down 13 points to 17,585, while the S&P 500 is off a point to 2,097. The Nasdaq is declining 8 points to 5,106, and the Russell 2000 is adding 2 points to 1,232.
I have updated our current trades below, so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 76-25-2 (74%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 12:00 p.m. EST.
I hereby disclose that I will be participating in the following trade(s). Every Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the portfolio.
SPDR S&P 500 ETF (SPY, $209.67, down $0.12)
SPY August 205 puts (SPY150821P00205000, $0.75, down $0.05)
Entry Price: $0.90 (8/3/2015)
Exit Target: $1.35-$1.80 (Limit Orders on half)
Stop Target: None
Action: Resistance is at $210-$212. Support is at $208.
PowerShares QQQ Trust (QQQ, $111.18, down $0.42)
QQQ August 110 puts (QQQ150821P00110000, $0.85, up $0.11)
Entry Price: $0.72 (7/30/2015)
Exit Target: $1.45
Stop Target: None
Action: Support is at $110. Near-term resistance is at $112.
SPDR Gold Trust ETF (GLD, $104.10, down $0.83)
GLD September 98 puts (GLD150918P00098000, $0.58, down $0.12)
Entry Price: $0.82 (7/28/2015)
Exit Target: $1.65
Stop Target: None
Action: Resistance is at $106. A move below $104-$103.50 should get $100 and below in play. The major moving averages are still sloping lower and show no signs of leveling out.
United Parcel Service (UPS, $102.60, down $0.15)
UPS October 110 calls (UPS151018C00110000, $0.41, down $0.03)
Entry Price: $0.70 (6/11/2015)
Exit Target: $0.70+
Stop Target: $0.20 (Stop Limit)
Action: Resistance is at $103-$105. A move above the latter should get the trade back to even or better. Support has moved up to $102-$101 and the 200-day moving average. There is additional help at $100-$99 and the 50-day moving average.
Trades on Hold — other 2015 Portfolio Open positions (1): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.
Rigel Pharmaceuticals (RIGL) September 5 calls (from 6/4/15) — Continue to hold.
Editor and Chief Options Strategist