Bull Chart of the Day -- SodaStream Is Looking Sweet

NEW YORK (Real Money) -- SodaStream  (SODA) is looking sweet here. The stock has struggled over the last year, but since the May lows has perked up quite a bit. The reversal in May has been huge. Support looks firmly entrenched between $20.50 and $21.

If you are looking to sell out-of-the-money put spreads several months down the line, then $20 or $21 is your short leg to target. If you are hedging a long-term holding, then $21 is your point to target. Stick to the legal drinking age in the U.S. (21) when you are trying to remember where to protect yourself. 

We saw a short squeeze recently, with the break higher coinciding with a small inverse head-and-shoulders pattern. Unfortunately, the stock has almost completed the upside move; however, the strength in the relative strength index (RSI) and nice bounce off the 34-day simple moving average by the On Balance Volume indicates further strength should come. Any pullback to the $22.50 area looks worth buying and I would consider selling some short-term $23 puts. Think July. The July 10 $23 puts should bring in $0.65 or a trader could look to the July 18 $22.50 puts for a net credit of $0.60. I might be a little greedy here and see if the stock fades a bit this afternoon and look to catch another dime on each of those.


The weekly chart is where the real pop may occur. Again, we see the clear bottom as well as a clear resistance level. This "V" pattern has many aspects of an inverse head-and-shoulders pattern. I don't see anything wrong with labeling it as such. The upside target here would be a fill of the disaster action of September 2014. Coincidentally, that target is also the same measured move on the inverse head-and-shoulders.

The RSI is making a new high ahead of price while the moving average convergence divergence (MACD) indicator is in a very nice uptrend with plenty of room to continue higher. If I could get an October $22-$29 call spread for $2.75 that is likely how I could attack it. Otherwise buying the stock here and using an October $21 put for $24.95 or less would be my approach. The first costs a bit less overall, but the second offers unlimited upside. Given the choice, I would lean towards the latter. Unlimited upside looks worth the extra $20 or $30 per 100 shares.

Editor's Note: This article was originally published at 11:23 a.m. EDT on Real Money on June 17.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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