For the third consecutive week, the major market indices gained ground. The Dow (DJI) added 117.29 points, or 1.10 percent, to close at 10,741.98. The S&P 500 (SPX) rose 9.91 points, or 0.86 percent, to 1,159.90. The Nasdaq (COMP) tacked on 6.75 points, or 0.29 percent, to 2,374.41. So far the month of March has been a positive one for the bulls with the Dow up 4 percent, the SPX up 5 percent and the Naz rising 6 percent.

This past week was quadruple witching, yet volumes remained light until Friday. Nonetheless, light volume has not stopped the bulls from continuing their trek higher with the major market indices all near 18 month highs. The bulls are hoping that stocks can continue to climb the wall of worry until first quarter earnings are released, which could provide further incentive to buy.

With strength in the major market indices, the fear indices are at support and this is a concern. The CBOE Market Volatility (VIX) fell 3.47 percent to 16.97 with the Nasdaq Volatility Index (VXN) down 6.68 percent to 17.87. These fear indices saw gains in the prior week, but then returned to support this past week. This is a concern because in January, these levels resulted in a correction for the major market indices. Friday saw stocks fall on concerns about legislation being passed on health care and financial reform. This could be the focus this next week was well, but I wouldn't expect volume to return until earnings season gets underway.

High Volatility: FRX shares have been on a decent uptrend the past 6 weeks, but this strength looks to be easing. The stock lost ground the past two sessions and looks poised to hit its 50-day moving average back near $30. FRX shares closed Friday's session at $31.28. We can set up a butterfly trade using the 27.50-30-32.50 options that would have a very nice reward to risk ratio. In fact, it would be better than 2-to-1 with a break even between $28.30 and $31.70. A biotech stock can see large swings, but despite its up and down movement this past year, FRX shares haven't seen the huge daily swings that many biotech's see. One nice thing about butterfly trades is that a sudden move can still be exited with less than the max loss in most situations.

Low Volatility: XOM shares have been trading between $65 and $75 for more than a year. The oil giant saw its shares close Friday at $67.04, down half a percent on the session. However, with oil prices on the rise, we could see XOM start to move back up. As a result, we could enter a butterfly using the 65-70-75 options in April. This can be set up with a possible reward of $300 compared with a max loss of $200. The profit zone would be between $67 and $73. We normally don't suggest butterfly's on low IV shares, but this one has a nice set up despite low IV for XOM shares.

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