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Eye on Options: Valero Sees a Spike

Valero Energy is seeing some heavy options trading, as put activity Monday more than tripled the daily average volume.

More than 18,600 puts changed hands by Monday afternoon, compared with the 6,000 contracts per day that traded through November. Buying has been most intense at the January 22.50 strike (VLOMA), where some 5,500 contracts changed hands, according to optionMONSTER's Heat Seeker tracking system.

VLO closed the session at $20.63 after making steady gains since hitting its 52-week low of $13.94 on Nov. 20. That reflects an overall run of all the oil refineries, which have been one of the best-performing sectors in the last month with gains averaging 20 percent.

The secret is apparently out, however, as Valero fell yesterday along with Frontier, Holly, and Western Refining. Facing poor returns on gasoline, VLO has been reducing production at 10 U.S. refineries and has sharply curtailed plant operations in Texas, New Jersey, and Louisiana.

Volatility is trading at the cheapest level in quite a while, as we're showing median readings in the low 70s versus 114 over the past 10 days.

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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.

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