It’s very very easy to create watermark image with Magento code. The Varien_Image class does the magic.

The function watermark creates watermark on the image.

Here is the code:

$mainImage = Mage::getBaseDir('media') . DS . 'test' . DS . 'image.jpg';
$watermarkImage = Mage::getBaseDir('media') . DS . 'test' . DS . 'watermark.jpg';

$image = new Varien_Image($mainImage);

// set watermark image width
$image->setWatermarkWidth(100);

// set watermark image height
$image->setWatermarkHeigth(100);

// create watermark image
// watermark($watermarkImage, $positionX=0, $positionY=0, $watermarkImageOpacity=30, $repeat=false)
$image->watermark($watermarkImage);

// save the watermark image
$image->save(Mage::getBaseDir('media'). DS . 'test' . DS . 'new.jpg');

Code Explanation

In the code above, you can see that I have an image named image.jpg inside media/test/ directory.
I have a watermark image named watermark.jpg.
I have set the watermark image width and height to 100px. You can omit these two functions if you don’t want to resize the watermark image.
The new image with watermark is saved inside media/test/ directory as new.jpg.

Hope this helps and thanks for reading.