Citi (C) is down $1.04 to $27.36 amid weakness in the sector after Federal regulators filed lawsuits against 17 major banks related to soured mortgage loans. In options action, an interesting three way trades in Citi on the ISE. Sentiment data indicate that one strategist sold 5,000 October 20 puts at 90 cents to buy the Jan 36 – 41 (1X2) call ratio spread at 31 cents, 5000X (10000 Jan 41 calls sold at 46 cents). This looks opening and like a bullish play, or a bet that Citi shares will hold above $20 through the October expiration in 45 days and then rally through mid-January 2012. Shares are down 11.6 percent since last-Wednesday, but still up 8 pecent from an intraday 52-week low of $25.4 set on 8/23.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

Coke (KO) is trading down 47 cents to $69.27 and moving lower along with 27 other Dow stocks today. Pfizer (PFE) and J&J (JNJ) are the only gainers within the industrial average. In options action, a noteworthy trade in KO is a seller of 20,000 January 70 calls at $2.69 per contract. It was tied to 920K shares at $69.18 and is possibly a closing trade, as open interest is 48,192 and the second largest position in the name. The Jan 70 call on Coca Cola is now 1 percent OTM with a delta of .46 and 136 days of life remaining. Meanwhile, implied volatility in Coke options is moving up 14 precent to 24, but remains well off the 8/10 52-week high of 32.5.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

Temple Inland (TIN) is a bright spot today after International Paper reached a tentative agreement to buy the company for a sweetened offer of $32 per share in cash. TIN is up $6.22 to $30.86 and Sep 30 calls are the most actives in the paper company. 6,100 traded, including 2500 at 83 cents when the market was 80 to 90 cents. It’s possibly a closing trade on the heels of the news. Sep 30 puts and Sep 31 calls are the next most actives. Meanwhile, implied volatility has plummeted more than 80 percent to 15, as the options market seems to be pricing in a relatively high likelihood of the deal going through.

JP Morgan (JPM) is down $1.58 to $33.05 and among thirty Dow stocks moving lower Tuesday morning. The top options trade in the bank so far is a Sep 32.5 – 35 put spread at $1.32, 2082X on ISE. It traded multiple times and volume in both contracts is more than 11000. Sentiment data indicate the spread is being sold-to-open. If so, the strategist is selling the spread and possibly taking the view that shares will recapture $35 through the September expiration, which represents a 5.9 percent move higher over the next 10 days. It’s going against the trend, obviously, as JPM is on a three-day 12.1 percent losing streak and is about 2 percent from an intra-day 52-week low of $32.31 set on 8/23.