Let's go back to the financial crisis and the practices that brought this country to its knees. Banks developed a fancy scheme whereby they absolved themselves of all risk from the loans they made. They simply wrapped them up in a bundle and sold them to someone else. What they were doing is essentially packaging and reselling "junk."

When the news of how bad things were became known, the markets froze and collapsed. No one knew who had which securities, and if they did, they didn't know their true value.

Even though we can anticipate billions of dollars in claims there still are buying opportunites.

Analyst Upgrades

• Netflix (NFLX) and Zions Bancorp (ZION) to outperform from neutral at Credit Suisse.
• Akamai (AKAM) to buy from neutral at Merriman.
• CSX (CSX) to overweight from equal weight at Barclays.
• Nordstrom (JWN) to buy from neutral, WellCare (WCG) to conviction buy from buy and Humana (HUM) to neutral from sell at Goldman.
• E-Commerce China Dangdang (DANG) to overweight from neutral at Piper Jaffray.
• VMware (VMW) to buy from neutral at BofA/Merrill.
• Celanese (CE) to overweight from equal weight at Morgan Stanley.

Do you have any interest in insurance companies amidst the turmoil, disaster and current crises in Japan? A crises that followed so closely on the heals of the destruction of the New Zealand city of ChristChurch by a 6.3 magnitude earthquake. Perhaps you think this is even a poorer idea than catching that proverbial falling knife we are always hearing about when stock prices are collapsing.

Certainly there will be billions of dollars in claims. On the other hand, perhaps the burden will be spread around the globe to reinsurer's such that none is struck too hard and this is a buying opportunity. After all, when the dust settles, insurers will cry for mercy, and in particular, rate increases. It is also likely those that never saw the need for insurance have been awakened and demand will increase.

NYSE Euronext (NYX) and Deutsche Boerse confirmed that they are engaged in advanced discussions regarding a potential business combination. February call option implied volatility is at 41, March is at 32, June at 27; compared to its 26-week average of 30, according to Track Data, suggesting larger near-term price movement.

Allstate (ALL) overall option implied volatility is at 24, according to Track Data, above its 26-week average of 27 into its release of Q4 EPS tonight, suggesting decreasing price movement.

Options Update is by Stock Specialist Paul Foster of theflyonthewall.com.

Shares of insurance giant The Allstate Corporation (ALL) are trading sharply lower in after hours trading after the company reported weaker than expected Q4 results this afternoon.

Going into this afternoon's earnings report, analysts had been expecting to see the company report earnings of $0.88, but actual results came in much lower than expected at just $0.55 per share.

U.S. stock futures are higher this morning. Futures for the Dow Jones Industrial Average index gained 21 points to 11,530.00, while those for the S&P 500 index gained 2.7 points to 1,256.80. Futures for the Nasdaq 100 index moved up 7.75 points to 2,233.25.

U.S. stock markets closed mixed Tuesday, with the Dow Industrials gaining 0.18%, the S&P 500 rising 0.08% and the Nasdaq Composite Index dropping 0.16%.

No major economic data are due for Wednesday.

Analyst Upgrades

• Merriman upgraded Penn National (PENN) to buy from neutral, citing the company's strong balance sheet and management team. The firm also raised its target range for shares to $34 to $37.60.
• BMO Capital upgraded Cooper Companies (COO) to outperform from market perform and raised its price target to $55 from $46. The firm sees upside to Street estimates and increased visibility.
• Argus upgraded Watson Pharma (WPI) to buy from hold based on valuation.
• Phillips-Van Heusen (PVH) was upgraded to conviction buy from neutral at Goldman.
• Allstate (ALL) was upgraded to overweight from neutral at JPMorgan.
• Weingarten Realty (WRI) was upgraded to neutral from underperform at BofA/Merrill.

Analyst Upgrades

• Jefferies upgraded Computer Sciences (CSC) to buy from hold and raised its target to $53 from $47. The analyst said Computer Sciences' valuation has created one of the best LBO opportunities in several years and could provide a five year IRR of 25+%.
• Keefe Bruyette upgraded Comerica (CMA) to outperform from market perform, citing strength of the company's capital. The firm raised its target for shares to $44 from $43.
• RBC Capital upgraded Nokia (NOK) to outperform from sector perform and raised its price target to $14 from $12. The firm upgraded shares based on valuation, reduced execution risk on software development, and potential catalysts from new devices based on Symbian^3. RBS upgraded Nokia to buy from hold after the company named Stephen Elop as CEO.
• Allstate (ALL) was upgraded to buy from hold at Citigroup.
• Coca-Cola Enterprises (CCE) was upgraded to buy from neutral at BofA/Merrill.
• Moody's (MCO) was upgraded to overweight from neutral at Piper Jaffray.

Analyst upgrades:

• UBS upgraded Salesforce.com (CRM) to Buy from Neutral based on positive feedback on the Chatter product and increasing confidence the company can beat FY11 guidance. The firm raised its price target to $111 from $90.
• Leerink upgraded Vivus (VVUS) to Outperform from Market Perform. The firm believes Qnexa issues raised by the FDA are labeling and marketing issues, and not approval issues. The firm expects a positive panel vote for Qnexa.
• Goldman upgraded AK Steel (AKS) to Buy from Netural citing lower iron ore prices. The firm has a $17 price target on the stock.
• Kinder Morgan Energy (KMP) was upgraded to Equal Weight at Morgan Stanley.
• Shire (SHPGY) was upgraded to Outperform from Neutral at Credit Suisse.
• Canadian National (CNI) was upgraded to Outperform from Market Perform at Raymond James.

Analyst Upgrades

• Oppenheimer upgraded VeriSign (VRSN) to outperform from perform, citing better-than-expected domain names trends and the potential for a sizeable share buyback. The firm has a $33 price target for shares.
• Oppenheimer also upgraded EMC (EMC) to outperform from perform, citing valuation and expectations for strong Q2 results. The firm set a $22 price target for shares.
• Piper Jaffray upgraded Juniper (JNPR) to overweight from neutral, citing valuation and its longer-term outlook. The firm keeps a $31 price target for shares.
• Kilroy Realty (KRC) was upgraded to neutral from underperform at BofA/Merrill.
• Veolia Environment (VE) was upgraded to buy from add at WestLB.
• QEP Resources (QEP) was upgraded to positive from neutral at Susquehanna.

Catastrophe bond capacity is maturing, and not much of it is coming back. In the first quarter, $1.8 billion in cat bond risk capital matured, and only $508 million returned in the form of new issuances, according to Thomson Reuters. This quarter, $2.77 billion is maturing, and the absence of first-time issuers makes it unlikely that the market will replace it all. More than a billion of it was from State Farm's Merna Re transaction. The successor to it has already been issued, cleverly named Merna Re II, at only a fraction of the previous bond.