The Japanese devastation is almost incomprehensible. First there was the earthquake, followed by the tsunami, followed by radiation. It seems the disaster has no end. The people are suffering beyond imagination. It will be a long time for the country to heal. In the north, it will take decades.

Investors are trying to understand what the economic aftershocks will be. Which industries will be hurt and which ones will benefit? Because the crises change from day to day, it's extremely difficult to ascertain. But there are a few themes that seem to be emerging. Some of these will be short lived, such as the closing of the Japanese auto manufacturers. While they will lose days of production, the long-term effect will be minor, unless supplies are interrupted, causing further delays.

Do you have any interest in insurance companies amidst the turmoil, disaster and current crises in Japan? A crises that followed so closely on the heals of the destruction of the New Zealand city of ChristChurch by a 6.3 magnitude earthquake. Perhaps you think this is even a poorer idea than catching that proverbial falling knife we are always hearing about when stock prices are collapsing.

Certainly there will be billions of dollars in claims. On the other hand, perhaps the burden will be spread around the globe to reinsurer's such that none is struck too hard and this is a buying opportunity. After all, when the dust settles, insurers will cry for mercy, and in particular, rate increases. It is also likely those that never saw the need for insurance have been awakened and demand will increase.

MetLife (MET - option chain) stock is trading lower today along with most other insurance companies this morning after the cost to insurers related to Friday's earthquake in Japan was estimated to be between $15 to $35 billion. Prudential Financial (PRU) and AIG (AIG) are also down so far in today's trading. Even if these insurance companies are actually on solid footing financially with regard to their expected claims, I expect investors could be frightened for several months to come, which could keep share prices depressed. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MET.

AIG (AIG) is a leading international insurance organization with operations in more than 130 countries. It provides life insurance, health insurance, auto and home insurance, retirement solutions and investment plans. It competes with other established insurance companies like MetLife (MET), The Hartford (HIG) and Prudential (PRU).

We have a price estimate of $30.36 on AIG's stock which is about 24% below the current market price.

MetLife reported a 36% increase in premiums, fees and other revenues from the insurance business outside of the U.S. in the year 2010, mainly due to the addition of about $836 million from ALICO's one month operations. MetLife acquired ALICO for about $15.5 billion from AIG as a part of its strategy to grow internationally. The acquisition has enabled MetLife to serve 90 million customers in over 60 countries and has significantly boosted MetLife's position as a leading insurance company in the U.S, Japan, Latin America, Asia Pacific, Europe and the Middle East.

Proshares UltraShort Barc 20 Year Treasury ETF (TBT) closed up 3% on a weak five-year auction. Wednesday is the seven-year auction. February 39 and 40 calls are active on total call volume of 31K contracts, 12K puts. January put option implied volatility is at 31, February is at 33; compared to its 26-week average of 34, according to Track Data. Active call volume suggests investors could either be putting on outright bullish positions or hedging short underlying shares.

AIG (AIG) is trading near a 28-month high. January 60 and 62 calls are active on more total call volume of 33K contracts compared to 15K puts. January call option implied volatility is at 48, February is at 49, May is at 45; compared to its 26-week average of 45, according to Track Data, suggesting non-directional price movement.

Options Update is by Stock Specialist Paul Foster of theflyonthewall.com.

AIG (AIG) closed up on an interview with The Deal magazine and AIG Chairman Robert Miller, who said the insurer was beginning to think about acquiring insurance operations instead of selling them. December 55 and January 66 calls are active on total call option volume of 168K contracts (90K puts). January call option implied volatility is at 43, February is at 41, May is at 38, versus its 26-week average of 45, according to Track Data, suggesting decreasing price movement.

Take-Two Interactive Software (TTWO) is scheduled to report Q4 EPS on December 16. December 12 straddle is priced at $1.00, January is at $1.60, according to Track Data, suggesting larger near-term price movement.

Options Update is by Stock Specialist Paul Foster of theflyonthewall.com.

American International Group (AIG - option chain) stock is trading lower today after the company reported fiscal-Q3 earnings this morning, posting a loss of $2.4 billion, or $17.62 per share, hurt in part by a $1.84 billion loss ($13.65 per share) from discontinued operations, a $1.3 billion deferred tax asset valuation allowance charge, a $1.3 billion goodwill impairment charge on pending sale of AIG Star and AIG Edison. Excluding one-time items, AIG lost $1.47 per share on revenue of $19.09 billion.

Most analysts declined to forecast quarterly results for AIG, due in no small part to its ongoing divestment of some assets to pay off its government bailout. The reason AIG isn't down more on this news is that these kinds of results are expected right now from the insurance behemoth. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AIG.