Options Expert Eyes Clorox and Tal Education

04/03/2020 5:00 am EST

Focus: CONSUMER

Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Bernie Schaeffer is an industry-leading expert in options and technical trading; for those familiar with options, here are two recent trading ideas from his The Option Advisor newsletter.

While the recent surge in Clorox (CLX) has since cooled slightly, shares of the cleaning product specialist found a solid floor at the stock’s gradually ascending 80-day moving average.

This area is also home to a large amount of put open interest near the 160-strike and served as support back in July 2019. Plus, the equity boasts a nearly 8% year-to-date gain, despite the broader market’s decline.

Clorox is ripe for a short squeeze, too. Short interest has risen 3.4% in the last reporting period, and now accounts for a healthy 7.4% of the stock’s available float, or 6.7 times the normal trading volume. In simpler terms, an unwinding of these bearish bets could send the equity higher.

Plus, CLX could benefit from a round of upgrades, considering that of the 11 analysts in coverage, nine still rate Clorox a “hold” or "strong sell." RECOMMENDATION: Buy the Clorox July 17, 2020 165-strike call.

The demand for Tal Education Group (TAL), a China-based holding company for school tutoring companies, has surged due to the need for online tutoring amid COVID-19 school closings. In exchange, the stock has seen a surge as well, and is now trading within a chip-shot of its all-time high near $59.

The stock earlier reclaimed support at its 60-day moving average and has been climbing above a trendline that has connected its lower highs since early March.

And although short interest has dropped 6.4% in the last two reporting periods, it would still take nearly four days for shorts to buy back their bearish bets, at the stock’s average pace of daily trading.

Among options traders, there is a large amount of activity present at the April 37.50 strike, an additional layer of support for TAL. RECOMMENDATION: Buy the August 21, 2020 52.50-strike call.

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