Yesterday’s volatile trade in both domestic and international equity markets comes courtesy of the craziness emanating out of Europe. Just last Thursday, we saw stocks soar after news surfaced that European leaders had reached an agreement on bailing out Greece and preventing the country from defaulting on its debt. Then on Tuesday, we woke up to the stunning news that Greek Prime Minister George Papandreou had announced he would hold a referendum on the proposed bailout.

If the country votes “no” on the measure, then it would essentially not enact the austerity measures needed to get the bailout funds from the other Eurozone nations and from the International Monetary Fund. That would threaten the entire European financial system and, by extension, the entire global financial system.

The worst part about Papandreou’s announcement was that there would be no vote on the referendum until January. The likelihood of another two-plus months in virtual limbo on the European debt crisis is likely to drive the market crazy, and that’s why we witnessed the ramped-up sell-off in Tuesday’s trade.

Now we’ve gotten word that the referendum idea is likely not going to happen. The whole mess in Europe is indicative of what kind of chaos the region is in … and what kind of tangled web gets weaved when so many countries need to come to the rescue of a system on the verge of default.

Fortunately for options players, Europe’s tangled web represents opportunity.

I suspect that, even if the referendum idea from Papandreou is scrapped, European stocks are headed for more selling going forward. To take advantage of that potential outcome, you can look at put options on the heavily traded Vanguard MSCI Europe ETF (NYSE:VGK). The slightly in-the-money VGK Dec 45 Put was up huge in Tuesday’s trade, and it’s liable to continue performing until word comes down that the debt deal is a done deal.

I see this as a trade lasting possibly only a very short time, so intrepid options players should look to get in and out fast, take profits quickly and limit downside aggressively if the trade turns against you.

Also part of Europe’s tangled web is financial stocks, and nowhere was that highlighted more than in now-bankrupt investment firm MF Global (NYSE:MF). The company’s woes were in part due to exposure to faulty Greek debt, and when last week’s Eurozone deal was announced, it became apparent that any firm with big exposure to European debt write-downs could be in trouble.

If you suspect, as I do, that there are still plenty of European debt skeletons in the closets of big financial firms, then you can bet against the sector with put options on the Financial Select Sector SPDR (NYSE:XLF). The just slightly in-the-money XLF Dec 14 Put was up over 30% Tuesday, and we are liable to see this heavily traded option gain more ground in the days ahead if weakness in the sector prevails.

Once again, be careful here, as you may have to trade out of this one quickly if we get some positive news out of Europe.

At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.