A Short Squeeze Could Fuel This Cleaning Stock

A short squeeze could fuel additional gains

Household cleaning company Clorox Co (NYSE:CLX) has been a high-profile name amid the coronavirus outbreak. CLX is up 20% in 2020, and more than 10% since the broad-market top on February 19. Despite this outperformance, there's still a great deal of skepticism to be unwound and keep the wind at the stock's back.

For starters, the brokerage bunch skews bearish, with nine out of the 11 in coverage rating Clorox a "hold" or "strong sell." Plus, the consensus 12-month price target of $170 is a 7.7% discount to Thursday's closing perch.

A short squeeze could fuel additional gains. Short interest increased by 6.2% in the two most recent reporting periods to 9.24 million shares. This accounts for a healthy 7.4% of CLX's total available float, or almost seven days' worth of pent-up buying power, at the stock's average pace of trading.

In the options pits, Clorox sports a Schaeffer's open interest ratio (SOIR) of 2.02, which sits higher than all but 4% of readings from the past year, meaning short-term traders have rarely been more put-biased during the past 12 months. An unwinding of these bearish bets could trigger a move higher in CLX shares. Our recommendedcall has a leverage ratio of 6.7 and will double on a 15.3% rise in the underlying stock.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this CLX commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.