Traders like the way Zimmer looks


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The bulls are sticking with Zimmer Holdings after the medical-device company bounced hard last week.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 1,500 January 95 calls for $0.70 and the sale of an equal number of January 80 puts for $0.60. Volume was more than twice the previous open interest at each strike, indicating that new positions were initiated.

The investor now controls the equivalent of 42,000 ZMH shares for a cost of just $15,000. Using common equity to get that much exposure would have cost about $3.7 million. The trader now stands to benefit from huge leverage if the stock rallies because the long calls will gain in value while the puts sold short will dwindle. The opposite will happen to the downside, so the trader could also see big losses from a steep drop. (See our Education section)

ZMH was up fractionally yesterday to close at $88.94. It gapped down to $80.55 on Oct. 24 after lowering earnings guidance but quickly rebounded and is less than $1 from last month's all-time highs.

Given that it bounced on heavy volume above $80, the investor might think that there is strong support at this level and that it's safe to sell puts. This way the trader won't miss a breakout while paying almost nothing upfront.

Another large trade hit late in yesterday's session as an investor bought the June 90 calls and sold shares, looking for increased volatility in the name.

Total option volume was 19 times greater than aver, according to the Heat Seeker.

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.

This article appears in: Investing , Options

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