A Trade for Financial-Services Volatility

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Top Gun Options) -- Top Gun Options sees a big week ahead in terms of the latest round of quarterly corporate earnings, and Wall Street may be ready to place its radar firmly on home ground.

Maybe, provided of course, that a new wave of angst doesn't find its way over from across the Atlantic, or Iran and Israel decide to drop the gloves once and for all. They will by the way...

With a number of the equity market's heavy hitters scheduled to announce fourth-quarter earnings results, including Goldman Sachs (GS), Google (GOOG), Intel (INTC), General Electric (GE) and American Express (AXP), investors have a chance to get a clear read on corporate America's health.

With all three of the major indices slightly up on the year, the distinct possibility of an extended bullish push may be in the cards, should the fourth-quarter results meet or surpass expectations.

Last week, the Dow Jones Industrial Average clawed its way up by 0.5%, an outcome that hardly seemed likely Friday morning when investors sold off strongly in reaction to the latest round of eurozone sovereign debt fears. All but a third of that dive was recovered, however, allowing the Dow to finish the week in the black.

The benchmark S&P 500 index also ended up for the week, just shy of a full percentage point at 0.9%. At 1289, the SPX continues to lurk just below the "psychologically important" 1300 level. A push past this level could initiate a round of buying that could catapult the index into territory not seen since the end of July 2011.

Lastly, the tech-heavy Nasdaq Composite index performed the best of the three, showing a solid profit on the week of 1.4%.

Like the Select Sector Financial SPDR (XLF), the tech sector will be featured prominently over the remainder of this holiday-shortened week, and will likely follow the lead of industry bellwethers Google and Intel.

So, even though ratings agency Standard & Poor's downgraded the credit ranking of previously triple-A-rated France, as well as the lesser-ranked eurozone members Italy, Portugal, Spain, Cyprus, Slovakia and Slovenia, there is a high level of likelihood that good U.S. numbers will trump bad EU news.

That said, if the big banks' earnings reports fail to match up with analyst expectations, investor sentiment will turn sour and south, and the short week on Wall Street may seem like a long one to the bulls.

On the Options Front

With a number of key financial institutions issuing fourth-quarter earnings reports this week, there is the potential for a serious short-term move in the financial-services sector. Taken together with Friday being options expiration, which often ratchets up trading volatility, speculative traders have the opportunity to put on a trade that would profit nicely from any sharp market move that may follow.

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