C – Citigroup Inc. – So much for keeping hold of the key areas of the bank that CEO Vikram Pandit explained to employees in November he'd keep hold of. The weekend news that Citi will cut off its brokerage arm and sell it to Morgan Stanley sends a message that Citi accepts the need to downsize radically in order to face the brave new world. With the handover it does get to recapitalize but it also has to forego a future earnings stream, which account for a double-digit share price decline to $6.04 today. In the options world, an investor sold a 10,000 straddle involving calls and puts expiring in February at the 5.0 strike for a gross premium of 1.91. The investor must believe that today's news will keep Citi's shares within a range anywhere between $3.09 and $6.91 by the time February's options expire. Option implied volatility has jumped today from 96 to 114% on Citi's options. Elsewhere we note selling of March 5.0 strike puts in a sign of limited confidence that shares will remain above the breakeven $4.50 share price.

TIF – Tiffany & Co. – Shares in luxury retailer, Tiffany & Co. declined in early trade while there seemed to be a bearish flavor in terms of option market activity. Implied options volatility added 9% to 87% today as one-in-ten of its existing options open positions was put into play. With January's expiration on Friday, we were surprised to see a 10,000 lot put order go through at the 20.0 strike, which if bought would need a further share price decline of at least 10% from Tiffany's current price of $22.05 before breaking even. On the call side, an investor used a bull spread to play any potential upside in the shares ahead of Friday. Using the 22.5 and 25.0 strike calls the investor paid a net 65 cent premium on trade volume of 3,000 lots. The sale of the upper strike reduces the cost of the trade but in so doing limits the potential upside from the trade to 1.85. The investor would start to break even should Tiffany trade above $23.15 by Friday.

EYE – Advanced Medical Optics. – Option traders threw EYE into focus today on the announcement of a takeover by Abbott Laboratories who announced it would acquire Advanced Medical Optics for $22.00 a share. Advanced Medical Optic is the world's premier producer of Lasik surgical devices but its business has suffered in the recession.

Shares surged 145% to $21.62 while positions were established in the April call series at strikes between 17.5 and 22.5. Investors managed to build 4,640 contracts at the 22.5 strike at premiums of between 15 and 30 cents on the day. It also appears that investors expect the deal to be struck and sold strangles intended to take in premium as shares become less volatile. The April 20 puts were sold in combination with the 22.5 strike calls at around a gross 45 cent premium. Option traders assume that shares will remain hemmed into the range between the strikes and would keep the entire premium should that occur.