Ambac (ABK) is reeling and implied volatility is racing higher after the company warned of a possible default of its loan obligations and said it is still considering a prepackaged bankruptcy. Shares are down 43 cents to 64 cents and options action includes 44K puts, 25K calls. Jun, Aug, and Jan 1 puts are the most actives, as some players brace for the worse-case scenario for ABK. Meanwhile, implied volatility is up more than 40 percent to 225 and multi-month highs.