Options: Zimmer Rolls on Takeover Buzz

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Call buying activity on Zimmer Holdings(ZMH Quote) spiked this morning on rumors that Johnson & Johnson(JNJ Quote) might be planning to take over the surgical products provider.

About 7,500 May 45 call options have traded so far today. The bulk of that volume happened in the first half-hour of trading, when approximately 5,200 contracts changed hands. Current open interest in these calls is 4,835.

The May 45 calls are currently trading around 75 cents, already up 23 cents from yesterday's close with implied volatility at 38.8. At that price, the buyer needs the underlying stock to be trading higher than $45.75 to be in-the-money at expiration. ...