This kind of smoke usually means fire

When someone buys thousands of out-of-the-money calls on a rumor stock like this, what are you going to do?

By Jim Cramer Jun 10, 2014 11:54AM

Smoke from a lighted match © Brinzal/Getty ImagesWhen someone comes in and buys thousands of out-of-the-money calls on Clorox (CLX), both for June and July, with a heavy emphasis on the July 105 calls, what are you going to do, stay short? How can you not take a shot at Clorox, betting that someone knows there is something afoot?


Clorox, these days, is the quintessential rumored stock. It doesn't have much growth to speak of. It has a bunch of companies that truly don't belong under one roof unless you can figure out how charcoal, kitty litter, Burt's Bees and Seven Seas salad dressing dovetail with trash bags, bleach and other cleaning supplies. I have never been able to figure it out.


But I know this. In a world where a bunch of second-rate brands under the Hillshire Brands (HSH) roof turned out to be worth almost double the price they were not that long ago, how can Unilever (UN) not take a hard look at the company? Procter (PG) tried to merge with it once before and it was rejected.


TheStreet.com logoWho is to think that it doesn't make sense for Clorox to go for more food and merge with Pinnacle (PF)? Or how about it goes for food and nonfood, with Pinnacle handling the condiments portion of Newco.


So many ways to skin the cat with Clorox.


Now, all that said, people have been speculating that this is the end of Clorox for as long as there has been Clorox. I can't tell you how many times I've bet that this company, along with Heinz (HNZ) and Campbell's (CPB), would eventually get a bid. My team used to make fun of me for always insisting having some Clorox calls on the sheet that were, alas, always rip-ups. And if the common did spike to near the calls, I had always shorted some common against it.


Clorox is hard to value. It has a 3 percent-plus dividend, which is terrific, and it regularly boosts the payout. But it does sell at 21x earnings, despite declining volumes and sales. That's way too expensive.


No matter, here's the key statistic you have to keep in mind. Clorox is less than a $12 billion company with products we all know and a secure and growing presence because of line extensions. That aisle space comes at a premium, and if you are any one of these food and consumer packaged goods companies, you might be thinking this is a once-in-a-lifetime chance to pick up extremely high-quality brand names with very cheap debt.


This is not a knock on CEO Donald Knauss. Every one of the companies I follow that do business in the supermarket are challenged, with the exception of WhiteWave (WWAV) and maybe Hain (HAIN). That's a really small list. I know not everyone wants cleaning products, and I'm sure many people think Clorox is fodder for the generic-branded companies. But the logic behind the call buying is ineluctable and, yes, irresistible, because where there is heavy option smoke, there is almost definitely an actual fire. 


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Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio for the stocks Cramer thinks could be winners.





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40Comments
Jun 10, 2014 1:38PM
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if the person buying these calls "knows something" then by definition he is guilty of insider trading.


Jun 10, 2014 1:02PM
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" How can you not take a shot at Clorox, betting that someone knows there is something afoot?"

 

And these shysters wonder why we hate Wall Street.

Jun 10, 2014 1:43PM
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Obamas approval ratings is now down to 38%.

 

This was just a poll released this week.  No mention on the news about it.

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charcoal, kitty litter, Burt's Bees and Seven Seas salad dressing dovetail with trash bags, bleach and other cleaning supplies. I have never been able to figure it out.
end quote

Let's see if you have cats then you will need the trash bags to haul away all the kitty litter you will be using. Then when the cheaply made trash bags burst open you will need the bleach and other cleaning supplies to clean up the mess. You hands will get so messed up by the chemical cleaners you will need the Burt's Bees lotion to soothe your skin. And of course it is no secret among cat owners that cats love Seven Seas salad dressing because it tastes like fish from the Seven Seas.

There I have linked them all together for you Crammer

Jun 10, 2014 1:36PM
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exactly the kind of trade that busted you out of the hedge fund business...........what a hack
Jun 10, 2014 3:35PM
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Amy

Of course there was no mention in the news about this. You know [or should know] that the media are now part of the government, now, rather than the watchdogs that they pretend to be. The few independent parts of the so-called news media don't have the cojones to go against the government's propaganda machine, which is 95% of the so-called news in the  papers on TV or the radio.


As you may have noticed, if you're old enough, starting sometime in the 1980s, we started having more and more "news" about celebrities and their hijinks [like most intelligent people REALLY give a $hit about them. Maybe a little, but NOT to the extent of these idiots hogging 90% of the headlines]


This happened, of course, when the big socialistic, fascist, corporations started to buy up the media outlets. You know what their slogan is??


"Free enterprise, and keep those subsidies coming!!"

Jun 10, 2014 2:38PM
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""Clorox is hard to value. It has a 3 percent-plus dividend, which is terrific, and it regularly boosts the payout. But it does sell at 21x earnings, despite declining volumes and sales. That's way too expensive.""

 

seems like parking your money in a spot with a reasonable dividend and potential for eventual stock growth isn't such a bad idea. 

 

unless cramer has simply launch another "buy while we all sell" order?

Jun 10, 2014 1:02PM
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Break up the big companies rather than merge them. That strategy is an end game.
Jun 10, 2014 1:20PM
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So what is your claim to fame in regards to skilled stock trading................ Duh, my mom knew this lady that worked in the Accounting Dept. at Clorox and she told mom.......... LMFAO. Good ole Wall Street.
Jun 10, 2014 2:40PM
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Does ANYBODY else realize, that you can click on the comment's section...of these Articles.


Sometimes read 10-15 comments, and not really know what the article is about...?


If you don't read the Article first (me thinks many don't) you wouldn't even understand many of the comments nor the article, neither one...

Jun 10, 2014 4:38PM
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Hey Beav why did you regurgitate the Ex Republican name? Are you running out of imagination? ........... What next.. Nevada Luke again.
Jun 10, 2014 2:52PM
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I'd like to buy a case of Chlorox and make all these market shills drink every drop of it.
Jun 10, 2014 3:29PM
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Come on CGT you almost had that scumbag...... don't puss out on us now.
Jun 10, 2014 3:30PM
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Could be a Stock Split , A spin off , or another company is trying to buy them. I'll hold my stock !
Jun 10, 2014 4:59PM
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We're going to need lots of Clorox for years to clean up Barry's mess.  It's a no-brainer - buy this stock.
Jun 10, 2014 4:24PM
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Forget Clorox bleach. People really need to be buying Proctor and Gamble, the makers of Tide Laundry Detergent.


Fears of Tide being a key ingredient in what the terrorists (people like the Chicago Gangs), are using to make explosives has moved the price up by a factor of ten (10) in just the past year -- to just under $15.00 bottle. And that is an inflation shrunk (formerly a gallon) bottle.


And now that the War on Terror is heating up here at "home" you will need a permit (every time you think our government can't possbily get any dumber, well . . . ), to buy laundry detergent, or any other bomb making ingredient (so called). Wait until having clean clothes means buying something else kept behind the counter instead of on the store shelf, like Sudafed.


From now on only the terrorists will look and smell "Cottony Soft and April Fresh" because they will be the only ones with clean clothes. And of course our criminal shyster politicians and banksters.

Jun 10, 2014 6:41PM
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With QE and 18 trillion and still printing who cares what you buy-Its all inflation not production. I build a house ten years ago-oops bad example-Gas before Osama's cost--oh wait prices are falling  and some are raising-hmm Cheese cost--wait at one point it was....Wow buy GUNS BY THE LOOKS OF THIS ECONOMY---GET YOUR BULLETS TOOOOOOOOOO.
Jun 11, 2014 12:11PM
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I'm not racist, but Obongo and Moochelle can take their bleach back to their home nation of Africa with their Muslim/Mexican good time buddies.
Jun 10, 2014 5:11PM
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Like we said earlier, if we can hang in there a flat day would be a good day and we did....Got lucky to be honest, volume has been very low lately and manipulators were saving their bs for tomorrow we believe...Oh well, we will see.
Jun 10, 2014 4:31PM
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Told ya...the corner is coming and the "cons" know it.  It is "insider" BS and has been.  What's the concern as it means nothing....same money doing the same "churning" thing. Their garden is about to run "dry".  Then what.... nothing.    
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