Bulls regain control of stocks despite disappointing employment report Friday. The Dow ($INDU) gained.310.20 points, or 3.20 percent, to close the week at 10,023.42. The S&P 500 ($SPX) added 33.11 points, or 3.20 percent, to 1,069.30. The Nasdaq ($COMPQ) tacked on 67.33 points, or 3.29 percent, to 2,112.44. Despite these gains, only the Dow was able to fully make up for the prior week's losses.

Earnings news continued to be heavy this past week, but the focus was on the economy. Several key reports were released this past week, culminating with the employment situation report for October released on Friday. Productivity soared during the third quarter, up 9.5 percent following a 6.9 percent gain in the second quarter. This is good news for corporate profits, but has kept hiring down. Nonfarm payrolls improve in the month of October from September, but fell more than expected at a decline of 190,000 payrolls. More disconcerting was the spike in the unemployment rate to a 26 year high of 10.2 percent.

Despite the disappointing news about the jobs market, stocks saw solid gains this past week, which led to a drop in fear. These fear indices tested resistance near 30 in the prio week, but were rejected. This past week saw the CBOE Market Volatility Index ($VIX) fall 21.18 percent to 24.19 and the Nasdaq Volatility Index ($VXN) decline 17.48 percent to 24.60. Unfortunately for the bulls, volumes on the up days was anything but impressive and many analysts feel sideways trading could be the norm for the next few months.

High Volatility: PCLN shares are at the top of our high IV list with the stock's ATM options showing IV of about 70 percent. PCLN shares have shown a lot of volatility this past year with a 52-week range from $48.30 to $182.32. The stock closed Friday's session at $172. PCLN is set to report earnings on Monday, which is the main reason IV is so high. However, despite this event, traders can enter a very nice butterfly trade on PCLN using the November 160-170-180 strikes. This particular strategy could be set up with a reward to risk ratio of $840-to-$160. The trade would have just a 14-day life span and could see solid gains in this short period of time. There is always the risk the stock will move sharply following its earnings report, but the reward to risk ratio makes this one worth the risk.

Low Volatility: Cisco reported earnings last week that exceeded estimates, although results fell from the year ago period. The stock initially jumped on the news, but some profit taking took place on Friday. Nonetheless, the networking giant has support at its 50-day moving average near $23, closing Friday's session at $23.82. Cisco's CEO John Chambers had positive things to say in an interview with CNBC and the company's board authorized the purchase of an additional $10 billion shares of its own stock. With IV low, now might be a good time to enter a longer term bullish trade on Cisco to benefit from the economic recovery.

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

• Email This Article
• View Full HTML
• Digg This
• Delicious
• Subscribe

Recent Articles by Jody Osborne, Optionetics.com

• March 18, 2010
  Closing Wrap-Up, March 18
• March 18, 2010
  Economic Watchdog, March 18
• March 18, 2010
  Morning Watch, March 18
• March 17, 2010
  Closing Wrap-Up, March 17
• March 17, 2010
  Morning Watch, March 17