Guarding against a drop in Clorox

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Clorox has been fighting a downtrend, and investors remain nervous toward the stock.

optionMONSTER's Depth Charge monitoring system detected the purchase of 1,000 August 85 puts for $2.10 and the sale of 2,000 August 82.50 puts yesterday. Volume was more than 5 times open interest at both strikes.

The position will earn a maximum profit of $2.50 if CLX closes at $82.50 on expiration. It cost nothing to open because they earned extra income by selling more downside contracts. That leverages a move to a specific level, while obligating them to buy shares below it.

He or she probably owns the stock and is using the trade as a hedge. It has the double benefit of protecting against a decline of $2.50 while also programming a buy order at the lower price. Given that the consumer-products name bounced around $82.50 last week, they're probably willing to buy more if it gets that cheap.

The strategy is known as a ratio spread because 2 times more puts were sold as the number purchased.

CLX rose 0.97 percent to $85.13 yesterday but has been trending lower since touching an all-time high of $90.10 in April. It's now back near the top of that descending channel and is sitting at its 50-day moving average, which could make some chart watchers fear another push to the downside. The ratio spread is a common way to protect against such a move. (See our Education section for other hedging strategies.)

Overall option volume was more than quadruple the daily average in the name. Puts accounted for a bearish 83 percent of the total, according to the Depth Charge.

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