Iron Mountain is not only a high-dividend payer but is also displaying an improving Composite Rating and Relative Strength rating.
IRM stock is up 3.84% over the last three months, outperforming the S&P 500, which was up 2.79% through Wednesday's close. The stock is forming a double-bottom base, according to MarketSmith pattern recognition.
According to the IBD Stock Checkup, IRM stock is ranked No. 1 in its group and has a Composite Rating of 97, an EPS Rating of 81 and a Relative Strength Rating of 80.
Income investors can further enhance the yield on the stock through the use of covered calls. Let's look at how a covered call trade on Iron Mountain might take shape.
Option Trading: Setting Up Covered Calls
Buying 100 shares of IRM would cost $5,415, based on Wednesday's closing price.
A May 55 strike call option was trading Wednesday around $1.60, generating $160 in premium per contract.
Selling the call option generates an income return of 3.04% in just over one month, equaling around 30% annualized. That is in addition to the 4.6% annualized dividend yield the stock pays out.
If IRM closes above 55 on the expiration date, the shares will be called away at 55. That would leave the trader with a total profit of $245 (the $85 gain on the shares plus the $160 option premium received).
Option Trading: 46% Return On Trade
That equates to a 4.66% return, which is 46% on an annualized basis.
Of course, the risk with the trade is that the IRM stock might drop, which could wipe out any gains made from selling the call.
Investors looking to increase their income can use covered calls and cash secured puts on high dividend stocks.
Check out IBD's new OptionsTrader app for options education, trade ideas and more! Download from the Apple App Store today.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
