Markets

Bull looks to climb Iron Mountain

Iron Mountain has been trending lower for three years, and one investor is looking for a reversal.

optionMONSTER's Heat Seeker tracking system detected an unusual three-way strategy that's designed to leverage a rebound in the business-service provider while limiting downside risk.

Blocks of 10,000 contracts each traded in the July 22.50 puts, the July 20 puts, and the July 25 calls. The 22.50s were sold for $1.80 while the 20s were bought for $0.925, and the 25s were bought for $1.50. Volume was more than 50 times open interest in all three strikes.

The net cost of the trade was $0.625. If IRM rallies above $25, the investor stands to profit on the calls and will roughly double his money for every $0.625 that the shares climb past $25.625.

The trader will lose money if IRM drops below $22.50, but the 20 puts will prevent the losses from exceeding $2.50. The strategy is essentially a bullish combination trade, where investors sell puts and buy calls to get long a stock, with a downside hedge.

IRM rose 0.6 percent to $23.45 in afternoon trading but has been falling since December 2007, when it peaked at $38.85.

The company performs tasks such as document shredding and transport. Its earnings have been mostly poor in the wake of the post-mortgage recession, but now that the economy is improving investors may expect better results.

Management issued weak forecasts in April, July, and early October. However, guidance in October was in line with consensus, potentially indicating that a turn is in the works. Some investors may also like the company because it's in an industry with high barriers to entry, with fleets of trucks and more than 140,000 corporate clients across 38 countries.

Overall option volume in IRM is 21 times greater than average so far today.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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