Amazon Options Bet Against Further Gains

Elan(ELN Quote) is seeing extremely heavy options activity as its stock moves higher.

So far today 54,000 calls are trading against 18,000 puts, which amounts to 16 times the average turnover in December, according to OptionMonster's tracking systems. Much of the action is focused on the January 9 calls (ELNAI), where I show blocks as large as 1,192 contracts trading, all on the buy side.

ELN has soared some 70% since hitting its 52-week low of $4.99 on Nov. 21. Today it spiked from $8.20 to $9.10 in just 7 minutes before settling down to the mid-$8 level in midday trading.

Investment bank Leerink Swann issued a positive report about Elan yesterday, but shares in the neuroscience-based biotechnology company may have jumped today because of takeover rumors in the pharmaceuticals industry, which has seen M&A activity recently ahead of JP Morgan's influential health care conference next week.

Materials Select SPDR

By Chris McKhann, analyst at OptionMonster.

The materials sector is having trouble regaining its footing, and today's options action looks for it to falter even more.

The Materials Select SPDR (XLB Quote)exchange traded fund fell from $46.54 to $18.81 from May to November. It has recovered to $25, but now sits at $23.60, range-bound and unable to break to the upside.

Someone is taking a short-term cheap shot to the downside, buying the January 20 puts. One block of 8,000 went for $0.10 against open interest of 2,559, according to OptionMonster's tracking systems.

Buying this type of short-term, out-of-the-money put is like buying a lottery ticket. One way of using the options "greeks" is to use the delta as a probability that the option expires in the money. The delta of that option is 0.05, giving it a 5% probability of finishing in the money.