DailyPlay – Opening Trade (CLX) – March 1, 2023

CLX Bearish Opening Trade Signal

View CLX Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 8 Contracts Apr 21st $155/$145 Put Vertical Spreads @ $2.72 Debit per contract..

Total Risk: This trade has a max risk of $2,176 (8 Contracts x $272).

Counter Trend Signal: This stock is currently experiencing bullish exhaustion, and a pullback is expected.

1M/6M Trends:  Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 145

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Tuesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

Stocks attempted gains yesterday, but higher rates created enough fear to make sellers win the session, and the SPX lost another 12 pts. (30 bps.) to again close at 3970 (also last Friday’s close), and the lowest close of the pullback that started in early February.

SPX – Daily

Today will be a daily Setup -9 count on a close < 4012.32, and along with the yellow highlighted rectangle support zone, we may be closer to a minor pop higher in the index.  However, be aware that there is talk on the Street that some $50 billion of stocks will supposedly be sold from algos and CTAs (Commodity Trading Advisors) into the market if the 200-DMA (currently 3940) gets breached, likely then sending the indexes even lower as dealers get stuck long buying what these funds would sell, and then the dealers need immediately turn around and hedge their long exposure by selling futures – thereby sending the market lower.

Looking at names that showed up as possible upside exhaustion candidates, I see that Clorox (CLX) is at the top end of a year-long trading range, and just posted a daily Setup +9 count against the Risk Level from a prior Sequential +13 reading. To me, this is not a bad place to consider a bearish play, looking for a partial or full closing of the unfilled gap that I’ve labeled on the chart below.

CLX – Daily

With liquidity only in the March 17th or April 21st series, the former is too close to expiration, and the latter is farther away from how much time premium I’d generally like to pay for a put spread. However, as of yesterday’s closing mid prices, the April 21st $165/$155 put spread only costs $2.73 – some 27% of the strike differential.  Earnings are not out till May, so we needn’t worry about those. Given the very choppy trading we’ve seen in this name, I’m betting that we can see that gap played within the coming month.