October is living up to its frightful reputation, with household goods brand Clorox (NYSE:CLX) suffering a hefty loss. Down more than 7% in the late-morning hours, CLX stock dubiously inked a new 52-week low. Imposing the impetus for the negativity was a cyberattack that caused severe financial harm. Notably, options traders remain skeptical, likely anticipating more pessimistic activity.
According to the company’s preliminary fiscal first-quarter disclosure released yesterday afternoon, management expects net sales to decrease by 28% to 23% against the year-ago quarter. Also, the team projects organic sales to decrease by 26% to 21% in Q1, compared to prior expectations of mid-single-digit growth. This downgrade stems from the cybersecurity attack disclosed in August.
Per the statement, the cyberattack caused widescale disruption of Clorox’s operations, including “order processing delays and significant product outages.” Adding to the woes, management announced that its gross margin will be down from one year ago.
As well, adjusted earnings per share will land at a loss of 40 cents to break even. Unfortunately, the impact from the breach “more than offset the benefits of pricing, cost savings and supply chain optimization.”
Per Bloomberg, authorities believe that a notorious group of hackers called “Scattered Spider” is responsible for the breach. Recently, the group has been tied to attacks on Caesars Entertainment (NASDAQ:CZR) and MGM Resorts (NYSE:MGM).
Options Traders Refuse to Speculate on CLX Stock
While suffering a 52-week low symbolizes an ugly milestone, under some conditions, the development could signal a contrarian move. In some sense, a crimson-stained security has been de-risked, possibly making the upside narrative more attractive. However, options traders — typically known as the smart money — are refusing to bite on CLX stock.
Interestingly, Schaeffer’s Investment Research points out that despite the sharp fall in Clorox shares, options traders don’t appear to be betting on a bounce back. As evidence, the number of puts outweighed calls during derivatives market trading this morning. Further, new positions in puts have been initiated, implying bearishness.
Arguably, though, a better read regarding the thought process of options traders arrives courtesy of the implied volatility (IV) curve of CLX stock options. Using Fintel’s data for IV along a spectrum of strike prices with the same expiration date, investors will note that peak IV in the out-the-money (OTM) put direction stands at 160%. On the flip side, peak IV in the OTM call direction comes in at 98%.
The much higher IV at the lower end of strike prices possibly indicates risk mitigation. In other words, traders are anticipating heightened activity associated with CLX stock dropping rather than accelerated activity tied to shares moving higher.
Logically, this framework makes sense. Securities tend to accelerate faster during selloffs than they do during breakouts. Therefore, options traders are merely accounting for this heftier risk profile.
Why It Matters
Analysts also do not offer positive vibes regarding CLX stock. Per TipRanks, experts rate it a moderate sell based on one buy, seven holds and seven sells. With the latest fallout, the average price target of $144.46 implies almost 19% upside. However, this target is deceptive because it averages in pre-disclosure price targets.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
