ArthroCare (ARTC: sentiment, chart, options) is down nearly 39% at midday after the company said it would restate its financial statements for 2006 and 2007, as well as the first quarter of 2008. The restatement is expected to lower certain previously reported revenue and earnings figures. Particularly, 2006 revenue will be downwardly revised by $4 million to $7 million, 2007 revenue will be lowered by $20 million to $25 million, and revenue for the first quarter of 2008 will be decreased by $2 million to $5 million.

Earlier, ARTC crumpled to a 4-year low of $23, and is now trading near $24.50. Today's news has sparked a flurry of put and call activity. Most notably, contracts are being added on the September 30 put (which has traded volume of 2,809 on open interest of 2,392), as well as the September 35 call (which has traded volume of 2,251 contracts on open interest of 503).

During the past couple of weeks, traders have shown a preference for puts on ARTC, which is down 17% year-to-date. According to the International Securities Exchange (ISE), more than 6 puts have been bought to open on ARTC for every 1 call during the past 10 trading days. Option activity on the ISE has been more skewed toward the put side just 15% of the time during the past year, indicating heightened skepticism from speculative traders.