How trader is hedging Iron Mountain


One investor is hedging exposure to Iron Mountain as the shares approach a long-term resistance level.

optionMONSTER's Depth Charge monitoring system detected the purchase of 3,500 July 35 puts for about $1.15 and the sale of a matching number of May 37.50 calls for $0.90. Volume was more than 9 times the previous open interest at each strike, clearly indicating new activity.

This combination trade cost $0.25 and provides downside protection on the document-shredding company through mid-July. The trader must also sell shares for $37.50 if they close above that level five weeks from now. Known as a collar , this is a common hedging strategy used when an investor wants to protect against a drop. (See our Education section for other ways to hedge positions.)

The unusual aspect of Friday's transaction is that it uses different expiration months. The decision reflects a belief that the stock could break out sooner rather than later.

IRM fell 1.77 percent to $37.11 in the session. The stock peaked at $37.70 last October and at $38.85 in December 2007, which could be leading some chart watchers to believe that it's near a top for the time being.

Total option volume was more than 3 times greater than average on Friday, according to the Depth Charge.

More From optionMONSTER

View Comments (0)