MAJOR PAPERS:

• Luqman Arnold, the former UBS AG (NYSE: UBS) president forced out in 2001, wants the firm to split its investment bank from the private client bank, and look at selling the investment bank and asset management business, according to the Wall Street Journal's "Heard on the Street".
• Microsoft Corporation's (NASDAQ: MSFT) bid to acquire Yahoo! Inc (NASDAQ: YHOO) has not gained any steam even though executives of the two companies met this week, the Wall Street Journal reported.
• The Financial Times reported that the landmark merger that created Citigroup Incorporated (NYSE: C) was a "mistake" that failed to benefit the financial services giant's investors, customers and employees, said John Reed, who masterminded the $166B deal with Sandy Weill in 1998. Reed, the former head of Citicorp, has advised Citigroup CEO Vikram Pandit at least to consider spin-offs, sources said.

• Walgreen Co (NYSE: WAG) is branching out by acquiring two companies that provide health-care services, BusinessWeek reported, following in its competitor CVS Caremark Corporation's (NYSE: CVS) shoes. Some investors are wary of Walgreen's move, but Mark Wiltamuth of Morgan Stanley sees it as a new growth avenue and as a push into services complementary to drugstores.

This Daily Option Update is provided by Options Specialist Paul Foster of theflyonthewall.com.

Today the Volatility Index S&P 500 Options (VIX) was up .03 to 10.80.

SunPower Corporation (NASDAQ:SPWR) puts bid higher than calls on difficult to borrow into earnings per share and speech. SunPower designs, develops, manufacturers, and sells electric power products, systems, and services. SunPower will report EPS on 1/25. President Bush's State of Union Speech is expected to emphasize renewable and alternative fuels as a source to decrease reliance on foreign oil. SunPower February call option implied volatility was at 48, puts at 59 because SunPower is difficult to borrow. SunPower 26-week average option implied volatility was 50 according to Track Data.

Pacific Ethanol Inc. (NASDAQ:PEIX) implied volatility was flat as PEIX rallied into the State of Union Speech. Pacific Ethanol is engaged in the business of marketing ethanol. PEIX was up $1.45 to $18.30. Crude oil was up 1.86% to $53.55. President Bush's State of Union Speech is expected to emphasize renewable and alternative fuels as a source to decrease reliance on foreign oil. Freidman Billings says "we are raising our price target for Pacific Ethanol from $16 to $20 and moving from a Market Perform to an Outperform investment rating based on expectations for positive momentum in the stock resulting from an increasingly favorable regulatory environment." Pacific Ethanol February call option implied volatility was at 55, puts at 64 on Pacific Ethanol being difficult to borrow and expected downward Pacific Ethanol price pressure. Pacific Ethanol 26-week average option implied volatility was at 61 according to Track Data, suggesting non-directional price risks.

Citigroup Inc. (NYSE:C) is recently down .22 to $54.45. Goldman Sachs increased its 2007 EPS estimates to $4.60 from $4.56. Citicorp over all option implied volatility was flat at 15 according to Track Data.

Option volume leaders today were: Yahoo! Inc. (NASDAQ: YHOO), Apple, Inc (NASDAQ: AAPL), Pfizer Inc.(NYSE: PFE), Amgen (NASDAQ: AMGN), and eBay Inc. (NASDAQ: EBAY).