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For the second straight week, the major market indices saw little net movement. However, quadruple witching on Friday did create volatility and higher volumes. The Dow ($INDU) fell 50.57  points, or 0.59 percent, to close the week at 8,579.11. The S&P 500 ($SPX) added 8.15 points, or 0.93 percent, to 887.88. The Nasdaq ($COMPQ) tacked on 23.60 points, or 1.53 percent, to 1,564.32.

The economy remained the focus this past week, mainly because of the FOMC decision on interest rates Tuesday. The committee surprised everyone by setting the Fed funds target rate at a range between 0.0 percent and 0.25 percent. The Fed stated that they stand ready to do anything necessary to help get the economy out of this deep recession. Following this announcement, the major market indices rallied above their respective 50-day moving averages. However, in the sessions to follow, this break was lost. Even so, the Naz and SPX have formed distinct ascending triangles and this could result in a move higher in the weeks to come.

The fear indices continued to fall this past week despite sideways trading for stocks. The CBOE Market Volatility Index ($VIX) fell 17.23 percent to 44.03. The Nasdaq Volatility Index ($VXN) declined 16.20 percent to 43.50. Fear is down substantially off its highs, but remains high compared to historic levels, although both indices have fallen in 10 of the past 14 trading session. Economic news has been weak and earnings news have been extremely poor, but is seems much of the bad news has been priced into stocks.

 

High Volatility: SLG shares have seen a lot of volatility in the past year, not surprising given it is in the real estate sector. Nonetheless, SLG shares ran into resistance near $30 on Thursday, which also was a double top. With IV high on SLG options, traders could look at entering a butterfly to take advantage of what it looks like could be some consolidation. We can enter a Jan 20-25-30 butterfly for about $105 if we get into the spread. This would provide a nice reward to risk ratio of $395-to-$105. SLG shares closed Friday’s session at $25.84 and this trade would provide a profit zone between $21.05 and $28.95.

 

Low Volatility: DAL shares have seen a lot of volatility this year, as has most stocks in the airline sector. DAL closed Friday’s session at $10.57, declining after running into resistance at $11.50. The stock is forming a distinct ascending triangle, which often results in a sharp rise in price on a break. A sharp decline in oil prices has benefited airlines, but a global recession has offset lower oil prices. Traders could use a break of resistance as a time to buy calls or enter a bull call spread to benefit from what could be a 25 percent rally.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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