LEG – Leggett & Platt Inc. – Our market scanners have picked up on sizeable put activity in manufacturer, Leggett & Platt, where shares are marginally lower at $14.31. The activity involves around 20,000 puts at the February 12.5 strike, which is a little above the existing 52-week low at $11.79. We can't tell from time and sales as to whether the investors bought or sold today's volume – but we do know that no investors held an open position ahead of today at this strike. The options volume compares to current open interest across this stock of 30,477 contracts and so sticks out like a sore thumb. We suspect that the puts were sold and that the transaction also involves either a new or current position in the underlying shares. An investor could be short the stock and the sale of puts would give them reason to buy back to close the trade should shares reach the strike price.

AA – Alcoa Inc. – An arrangement between New York Power Authority and Alcoa resulting in $600 million deal in which Alcoa will build a new power plant in exchange for rights to sell electricity to the state didn't seem to do much for its shares – lower by 7% to $10.04. Perhaps that's due to investors bracing themselves for a poor set of post-hours earnings today. Investors rolled 10.0 strike put protection from the January to February contract, while some investors sought the sanctity of protection as low as the 7.5 strike expiring Friday. We note that February puts at the 7.5 strike were actively sold today, while call options reflected a better outlook where rights to buy at the February 15 strike were largely bought today. Ahead of earnings, option implied volatility jumped 175 to 102% today

CAT – Caterpillar Inc. – Shares in Caterpillar seem to be shaking out those less optimistic about the potential from the stimulus package and have dropped 4% to $41.50 today. Option implied volatility is a little higher at 61% while one favored way of playing activity in Caterpillar today seems to be the use of strangles implying range bound traffic ahead of February's expiration. The February 35 puts were sold in conjunction with 45 strike calls expiring at the same time for a net credit of 2.75. That implies that the investor sees shares remaining within the $10 range and would start to lose money if they strayed above $47.75 or fell beneath $33.25. There was also some strangle activity combining the 45 and 50 strikes.

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.