Datasheet lists typical operating range as 0.2-15mm.
If you're planning to mount several in the side of the clip, for example to give 0/25/50/100% full readings, this sensor could work.
If you're planning to mount just one in the end, it's unlikely this will be accurate enough. Something like this would be a closer fit:
https://www.sparkfun.com/products/12728Those are old tech, easy to understand and use, with lots of examples. They work by using a lens to project a somewhat focused dot of light. Two light sensors behind another lens detect the light at different efficiency, depending on its angle relative to each sensor. The lesser the angle, the further away it is. By comparing the two sensors, it's able to estimate a distance, which is output via an analog signal.
At the other end of the spectrum, a new and cutting edge optical time-of-flight module. It produces a quick burst of laser output, then measures the amount of time for that burst to bounce back. No trivial feat. Surprisingly inexpensive, and very accurate, but harder to use:
http://www.st.com/web/en/catalog/mmc/FM132/CL2136/SC1934/PF260441?icmp=pf260441_bn_home_feb2015