Today’s tickers: C, XLF, JPM, WFC, CVS, ISIS, BUD, CFC, SBUX, DFS

C - Implied volatility in Citigroup rose 12.3% to 49.8% this afternoon as its shares closed 4% lower at $27.12, another 52-week low for the company. The spike in implied volatility followed reports of an S&P downgrade of 8 Citi alternative investment funds, in a week that has already brought bearish conjecture on possible job cuts and the size of that all-elusive “kitchen sink writedown.” This morning, analysts at Merrill Lynch reckoned Citi losses at double the current estimate from $0.73 to $1.43 per share – all told, some $16 billion. With more than 720,000 options in play this afternoon according to our scanners, volatility traders came out to play in the January contract, with what appeared to be strangle buying between the 27.50 and 30 strikes, a position which costs $1.38 today, covering the buyer in the event of a move below $26.12 and above $31.38. The same strategy appeared in force in the February contract, where the long volatility position costs $2.53. It appears that some traders may be wagering on a subsidence of volatility by January 2009, however, with straddle activity at the 27.50 mark trading to the middle of the market on volume of some 20,000 lots at each strike. A seller of this position would pocket the $8.35 premium on this time-value-rich position in the belief that Citi is sure to turn out the lint in its pockets in 2008, one way or another, starting ‘09 at the current 52-week low. A buyer would do so expecting that the volatile rockets’ red glare will continue to pour on Citi’s share price – to the upside or the downside – even into ‘09.

XLF - A fresh 52-week-low was hatched this afternoon in the XLF, the Financial Select Sector ETF, which closed 3% off yesterday’s close at $26.58. With more than 600,000 options in play trading to puts by a factor of 1.5, put volume in the ETF hit its highest level in more than a month. While it appears that the immediate bias among traders is to seek long volatility positions in Citigroup and some of the fund’s other components, we observed some evidence of strangle selling and call spread activity in the XLF itself. The January 27/28 strangle may have been sold on volume of more than 40,000 lots – a position that would garner the seller some 92 cents in premium. The March contract saw sizable put volume go through at strikes of 24 and lower, suggesting that the bar on defensive action in the financial space continues to move lower.

JPM – Put-spread activity was prevalent in options of JP Morgan Chase, one of a number of money-center banks due to report earnings next week. Shares in the company closed 4.4% lower at $39.55, again, a new 52-week low. With 173,500 options in play on Tuesday, JP Morgan Chase was one of the most actively traded option families on our scanners. Earlier today we noted volume of 25,000 lots logged to the February puts, with traders selling puts at the 40 strike for around $2.00 apiece, and buying at the 35 strike for $0.55 to create a vertical credit spread in puts after the front month. The same strikes were in play in January puts, where premiums rose as much as 30% on today’s share price decline.

WFC – Options in Wells Fargo piqued our market scanners this afternoon as shares traded 4% lower at $26.45, owing to high-volume put spread activity in the January contract. The sizable volume here involved 140,000 contracts at each strike in the 27.50 and 32.50 puts, with the trader selling the 32.50 puts at 5.40 and buying the 27.50 puts at 1.40 to begin the transaction with a credit of $4.00.