Europe and Japan have their troubles. Europe, with its unresolved debt problems of eurozone members Greece, Portugal, Spain, Italy, and Ireland. The UK, though not part of the eurozone, is also in the midst of some wrenching “austerity” and fiscal tightening policies being implemented by the new government.

European economic recovery from the last recession, already very fragile, shows signs of grinding to a halt. European bond yield spreads between German and most other eurozone member debt widened again last week on growing concern that the debt crisis will not be resolved or eased the by the trillion-dollar ECB/IMF backstop put in place a few months ago.

In Japan, deflation continues to dog the government, while economic output remains relatively weak, growing a tepid 1.2% in the first quarter of 2010, with the outlook further clouded by a looming slowdown among the G7 industrialized countries in the second half of the year.

Not a pretty picture from any angle. And not something that is likely to be righted anytime soon. In fact, the eurozone and the sovereign debt that continues to build up in that region, may be the next crisis to hit financial markets. Certainly there is a strong likelihood that markets in the eurozone will drag global growth over the next year.

If you are an aggressive options trader who wants to ride the eurozone fallout during the second half, you could look at buying puts on iShares MSCI EAFE Index Fund (TSX: XIN, Friday’s close $16.77). This ETF has a combined 50% exposure to Japan (21%), the UK (20%), and France (9%) and is hedged back to the Canadian dollar.

A couple of points to consider before jumping into XIN options. Point 1, XIN options are not liquid and as such, there is often a wide spread between the bid and asked price. Point 2, tread carefully in this market, use only limit orders and go into this trade accept the fact that you may have to hold to expiration. Which itself is not make a pretty picture.