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April 12, 2013  Fri 12:22 PM CT

CLX: SEE CHART GET CHAIN FIND STRATEGIES
Clorox has been running like a horse, and one investor doesn't want to let it get away.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 4,000 May 92.50 calls for $0.25 and the sale of an equal number of May 80 puts of $0.10. Volume exceeded open interest at both strikes, indicating that new positions were initiated.

The strategy cost just $0.15 to implement and ensures the investor a piece of the action if the stock surges above $92.50 by expiration. He or she may expect such a move after the company's earnings report on May 1.

CLX is off 0.27 percent to $88.45 in afternoon trading but is up 21 percent so far this year. It's been rallying along with other consumer-products companies as investors shift money back into equities following years of preferring bonds.

Today's trade has the advantage of costing little, preventing the investor from missing a big move before expiration. Because of the short puts, he or she is also on the hook to buy shares for $80 if they fall below that level by expiration. That probably wouldn't be a problem, as the trader already likes CLX. (See our Education section for more on how options can be used to manage trades.)

More than 8,500 contracts have traded in the name so far today, nearly 5 times the average amount.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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