Late yesterday, Moody's Investors Service cut Ambac Financial Group's (ABK: sentiment, chart, options) senior unsecured debt to 'Ba1' from 'A3.' The move reflects ABK's diminished business and financial profile resulting from ABK's exposure to losses from U.S. mortgage risks and disruption in the broader financial guaranty business. Moody's noted that ABK's financial strength rating remains investment grade, as it still has a "meaningful" amount of extra capital to cover expected losses - but the ratings house believes that could change. Moody's stated, "Should Ambac's regulatory capital position continue to deteriorate, there would be further negative pressure on the firm's ratings."

ABK replied that the timing and the severity of the downgrade was "unfortunate," and the move was just that for the stock - as ABK has shed more than 20% as we approach the final trading hour. Technically, there aren't many nice things to say about ABK's performance. On a year-to-date basis the stock has shed 92% ... but option players continue to hold bullish feelings toward the firm. ABK's Schaeffer's put/call open interest ratio (SOIR) of 0.61 is lower than 80% of the past year's worth of readings. If this optimism unfurls, we could see the stock dragged lower.