Ratio Call Spread Play in Zimmer

Shares in Zimmer Holdings (ZMH - commentary - Cramer's Take) are trading 2.3% to the downside at $37.80 today, breaking ranks with other medical device producers and the broader market. The downside in the share price has had the effect of bringing down prices of calls relative to puts, but with VIX still north of 60, any kind of long option position is a sizable expense.

One trader mitigated this cost by trading a January call spread in a 1-by-3 ratio at strikes $35 and $45. Buying the $35 strike calls alone, which are nearly $3 in-the-money, would cost the trader $5.70, but by selling three calls at a higher strike, he or she was able to take in a $4.20 credit toward that purchase, bringing the net debit down to $1.50 and the break even on the trade to $36.50, still below current share price levels.

The ratio call spread carries more risk than a traditional 1-to-1 call spread, because two-thirds of the short position at the higher strike is uncovered. This requires particularly emphatic confidence on the part of the trader that the upside call won't be exercised. Indeed, the options market at present is pricing in a better than 70% chance that the call will expire worthless. Zimmer Holdings shares have traded as high as $80.92 over the past 52 weeks.

Call sellers are targeting contracts in mobile phone maker Nokia (NOK - commentary - Cramer's Take) as shares stage a 2.5% gain, to $14.06 today. The volume in calls, which are outmaneuvering puts by a margin of 35 to 1, may be the result of profit-takers picking their moment to close out existing long positions, but at least in the one position, the January $14 calls, 99% of the volume was sold to the bid and was logged as opening positioning.

The immediate takeaway from this volume is that traders are by and large capping any recovery expectations from Nokia's share price, with even today's puffed-up price representing only about a $2 premium to the 52-week low.

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At the time of publication, Darst had no positions in the stocks mentioned.

Rebecca Engmann Darst is the Portfolio Manager for TheStreet.com?s Options Alerts Portfolio newsletter and an equity options analyst for RealMoney Each Thursday at 6:30 a.m. EST, she delivers the early-morning lowdown on option volume and sector trends on CNBC's "Squawk Box." Prior to her work in the equity options market, she spent seven years in Scandinavia as a Copenhagen-based chief reporter for a European Commission news service, correspondent for Spanish daily El Mundo and Radio Netherlands, followed by stints at Nordea Bank and Saxo Bank.