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Stocks end losing streak with the start of earnings season providing strength. The Dow ($INDU) gained.377.27 points, or 3.98 percent, to close the week at 9,864.94. The S&P 500 ($SPX) added 46.28 points, or 4.51 percent, to 1,071.49. The Nasdaq ($COMPQ) tacked on 91.17 points, or 4.45 percent, to 2,139.28. This strength left the Dow and SPX at highs for the year, which came, ironically, on the two-year anniversary of the all-time high for these indices.

The first full week of trading in October got off to a great start if you're a bull. The official kick off of third quarter earnings by Alcoa (AA) provided strength, as did better than expected economic news. Traders are looking for top line strength in the third quarter, instead of just improving bottom line results thanks to cost cutting. Besides a plethora of market moving earnings reports due out this week, economic data on retail sales and industrial production will be released.

Thanks to large gains for stocks, the fear indices saw substantial declines. The CBOE Market Volatility Index ($VIX) fell 19.39 percent to 23.12 while the Nasdaq Volatility Index ($VXN) lost 16.68 percent to 24.18. This puts these indices near their lows for the year and it looks like we could see a range develop between 20 and 30 for both the VIX and VXN. There have been three times since August when the fear indices found resistance near 30 and both times stocks rallied from this level.

High Volatility: NTES shares broke through a key support line last week at their 50-day moving average. This ascending trend line has been support for the stock since March when the stock was at just $20. On Friday, NTES shares closed at $40.51, but this was the second straight session of significant losses and occurred on large volumes. With IV high on the stock's options, traders can take advantage by entering a bearish butterfly. The stock does have support near $38, so traders could enter a butterfly or condor that would take advantage of consolidation near this level. NTES is set to report earnings in mid-November.

Low Volatility: CSCO shares closed Friday's session at $24.03, a new 52-week high. However, the networking giant is set to report earnings the first week of November and the stock has shown strength heading into this report the past couple of quarters. IV is currently low on CSCO options, so we could see an increase in IV as the company's earnings announcement approaches. We also expect to see further gains for the stock throughout October. Traders can take advantage of low IV and a move higher by entering a straight call or a bull call spread.

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

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