Markets

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.

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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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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