The Dow and S&P 500 finished at two-year highs Wednesday lifted by a bullish outlook for financials and reduced concerns about European debt. We closed the day the same way it started it, in the green. Almost all of the gains after the initial gap came in the last 20 minutes of the trading day, but only the close matters.

The Dow Jones Industrial Average ended up 83.56 points, or 0.72%, to close at 11,755. The S&P 500 rose 11.48 points, or 0.90%, to close at 1285, and the NASDAQ was up 20.50 points, or 0.75%, to finish at 2737.

Overall market breadth was largely positive as well with 70% of stocks finishing higher while 28% gave up ground. About 960 million shares traded on the New York Stock Exchange and 1.8 billion shares changed hands on the NASDAQ.

The CBOE Volatility Index ( VIX) decreased to a 13-day low and January volatility collapsed, closing down 3.85%, at $16.24, on put volume of 216,000 contracts compared to 254,000 calls, with March 30 calls as the most actively traded series.

The wide differential between implied and historical volatility has remained at about 14 points. That is usually a harbinger of volatility to come. Like we said last night, this earnings reporting season is as important as ever, and not just because its Q4 and year-end numbers. It could be the catalyst that brings volatility back to the market and confirms a move in either direction. The longer we play in a range, the more explosive the break should be. Keep in mind, we are about to enter a seasonally bearish period (especially for NASDAQ) over the next 10 days, according to the Stock Trader's Almanac.

SPDR S&P 500 ETF ( SPY) volatility remains low to rally 11% over the last three months to two-year high. SPY closed up $1.15, at $128.58. SPY January call implied volatility is at 12, February calls 14 and March calls 15, below its 26-week average of 22. Professional long investors are curious if the recent rally has been boosted by short covering.

The PowerShares QQQ Trust ( QQQQ) volatility increased 6% as traders reassess fundamental risks into EPS. The Qs closed higher by $0.40, at $56.56. January call option implied volatility is at 15, above a level of 13 from January 11 and March is at 19, compared to its six-month average of 22, suggesting decreasing price movement.

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