Ambac (ABK) is down 13 cents to $1.05 and puts are seeing heavy trading after rival bond insurer MBIA (MBI) posted a quarterly loss of $730 million late Monday and Ambac released a 10-Q filing that revealed the company faces greater oversight from OCI. According to the filining released late Monday, OCI could decide to initiate deliquency proceedings with respect to Ambac Assurance to protect policyholders. It could result in a $23 billion termination payout. Shares are down on the news and 6860 puts traded so far, which represents 43X the expected for morning trading and compares to 640 calls. Buyers of Feb 1.5 and Nov 2.5 puts are leading the order flow. Average implied volatility is rallying to 200, from about 192 late yesterday and 171 one week ago.