Casinos, TBT Among Option Plays (Update)

Updated from 2:51pm. Adds TBT item.

TBT

By Jon "DRJ" Najarian, cofounder of OptionMonster.

Options traders are snapping up calls in the TBT(TBT Quote) exchange traded fund, which has been rising steadily since the end of the year.

The TBT, which seeks investment results that correspond to twice the inverse daily performance of the Lehman 20+ Year U.S. Treasury Index, saw some 16,000 calls traded today versus 5,700 puts. (Remember, because this ETF trades inversely, the calls go up as the bonds in the TBT drop.)

Both the January 41 and 42 call volumes are 6 to 9 times the open interest at either strike, according to optionMONSTER's tracking systems. Average daily turnover of calls in the month of December was a mere 700 contracts per day, so today's action is 24 times heavier than normal.

Since Dec. 31 the TBT has rallied sharply, running from just below $36 to as high as $42 today.

Casinos

By Jon "DRJ" Najarian, cofounder of OptionMonster.

Options trading is active in three major casino stocks that have all seen large double-digit gains in the last few days.

Since we closed the books on 2008, Las Vegas Sands(LVS Quote) has rallied some 41.6%, MGM Mirage (MGM Quote) is up 25%, and Wynn Resorts (WYNN Quote) has gained 21.5%. Today alone, LVS is up more than 19% from its previous close.

Options activity has followed the rising share prices. LVS is seeing some 31,500 calls trade against 8,900 puts, while at MGM 4,600 calls are trading against 1,700 puts, according to optionMONSTER's tracking systems.

WYNN is seeing 2,700 calls against 8,700 puts, but most of the put action is centered on the January 50 and January 45 put strikes, the bulk of which have been sold on the bids--thus not an indication of bearish activity.

MarkWest Energy

By Pete Najarian, cofounder of OptionMonster.

MarkWest Energy (MWE Quote)is up nearly 17% and has attracted the attention of options traders.

Traders have been buying calls for the last week in the natural gas company, which is near its highs of the session at $11.10 at midday. The January 10 calls are trading at $1.20

Shares of MWE have steadily declined since their 2008 closing high of $37.80 back in early June. MarkWest hit a 52-week intraday low of $6.55 on Dec. 23 after its latest downgrade.

VIX

By Chris McKhann, analyst at OptionMonster.

The VIX(vix.x Quote) went on a wild ride in the fourth quarter, but the historical volatility is actually at a 52-week low. While the VIX (the implied volatility of the S&P 500) has dropped more than 50% from its high, the volatility of the VIX (the volatility of volatility!) has dropped much more.

This is significant for several reasons. The first is that the VIX is not very volatile right now at all. Second, lows in the historical volatility of the VIX often correspond to market tops.

We do need to take into consideration the holidays, which certainly dampened volume and volatility. But this is another volatility signal flashing a warning on this rally.

The implied volatility of the VIX is down to 81%, which puts it back to pre-September crash levels and well off the high of 247% from Oct. 14. But it's the historical volatility that has made the most interesting moves.

The 30-day historical volatility is still high at 107% but down more than 50% from the high of 227 on Nov. 7. The 10-day has fallen from 284 on Oct. 24 to its current level of 39, just above its 52-week low of 33. And most significantly, the 20-day HV is down to 55, its lowest level of the last year.

SanDisk

By Bryan McCormick, analyst at OptionMonster.

SanDisk(SNDK Quote) has broken above a key technical level and could have more upside potential.

There is a bullish "inverted head and shoulders" pattern in progress on the SNDK daily chart. The stock broke through the $11 area this morning, which is when the pattern became active.

When we measure from the bottom of the head of the pattern to the breakout level, the trading suggests that a move up to the $17 area is possible. That is, of course, presuming that the pattern does not get broken along the way. Right now a move back below $11 would void it.

Bear in mind anything might interrupt the pattern on the way up. That $17 target area therefore is just the technical potential of the trading pattern.