Southwest Airlines (LUV) canceled 300 flights on Sunday, to inspect 79 Boeing (BA) 737-300 planes to address possible "skin fatigue". Overall option implied volatility of 29 is below its 26-week average of 32 according to Track Data, suggesting decreasing price movement.

KB Home (KBH) April put option implied volatility is at 52, May is at 45; compared to its 26-week average of 46 according to Track Data, suggesting larger near term price movement into its expected release of Q1 results on April 5.

Update is by Stock Specialist Paul Foster of theflyonthewall.com

Analyst Upgrades

• Disney (DIS) to buy from hold at Wunderlich.
• Pike Electric (PIKE) to outperform from market perform at FBR Capital.
• Kindred Healthcare (KND) to overweight from equal weight at Barclays.
• UBS (UBS) to hold from sell at Canaccord.
• Avery Dennison (AVY) and Take-Two (TTWO) to buy from neutral at BofA/Merrill.
• Mercer (MERC) to outperform from market perform at Raymond James.

KB Home (KBH) is ending the week on a high note, after the homebuilder comfortably surpassed Wall Street's fiscal fourth-quarter earnings expectations. Bright and early Friday morning, KBH announced quarterly net income of $17.4 million, or 23 cents per share, on revenue of $451 million. Adjusted housing gross margins improved to 19.7% from 19%.

This marks KBH's first quarterly profit, without the aid of tax gains, in almost four years. Analysts were anticipating KBH to swallow a deficit of 17 cents per share on revenue of $441.3 million, so these results definitely qualify as a positive surprise.

Southern Copper (SCCO) closed down 0.5%. Copper futures rose 0.61%, according to Bloomberg. Overall option implied volatility of 36 is near its 26-week average, according to Track Data, suggesting non-directional price movement.

KB Home (KBH) is expected to report Q4 EPS on Jan. 7. KBH January call option implied volatility is at 55, February is at 53, above its 26-week average of 51, according to Track Data, suggesting larger price movement.

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

If you check out the stats at KB Home's (KBH) quote page, you'll notice that it's been doing poorly for a long time, until recently, when, over the last month, it decided to bounce strongly off the 52-week low of $9.43. Today, with about three hours to go before the end of the session, it is higher by almost 3.8% to $12.15 on the back of an earnings report.

Indeed, the chart shows what I'm talking about. And you have to wonder if the strength in the homebuilder will continue. There is one problem: although volume does stand a chance of ultimately going above the average, at the time of this writing, it isn't too impressive.

Housing steps into the spotlight again this coming week. The release of the National Association of Homebuilders Housing Market Index starts out the week on Monday morning. Then on Tuesday morning, look for housing starts data from August. Release of the July FHFA House Price Index is scheduled for Wednesday. And numbers for existing home sales and for new home sales in August are due out Thursday and Friday, respectively. Overall, the housing market is expected to have continued to lose momentum in August, but less dramatically than in July.

Also on the economic calendar this week: Tuesday's FOMC meeting on interest rates, the Conference Board's Leading Economic Indicators Index for August on Thursday, initial jobless claims for last week, and durable goods orders data for August on Friday. No significant changes from the Fed are anticipated, but the leading economic indicators may rise a bit.

Analyst Upgrades

• FBR Capital upgraded Halliburton (HAL) to outperform from market perform as it sees less headline risk from the Gulf of Mexico spill following Wednesday's House Energy and Commerce Committee hearing. The firm upped its target for shares to $44 from $35.
• FBR Capital also upgraded Morgan Stanley (MS) to outperform from market perform as it views the valuation as attractive following the recent pullback in shares. The firm maintains a $35 price target for shares.
• Deutsche Bank upgraded Avnet (AVT) to buy from hold on valuation; it views the recent pullback as a buying opportunity. The firm raised its target for shares to $39 from $36.
• U.S. Steel (X) was upgraded to conviction buy from buy at Goldman.
• News Corp. (NWS) was upgraded to buy from hold at Argus.
• Sprint (S) was upgraded to outperform from market perform at Raymond James.

Here are some highlights from this past week's earnings coverage on BloggingStocks:

• Adobe Systems Inc. (ADBE) reported that Q1 revenue was up but earnings declined sharply, and it offered guidance.
• Best Buy Inc. (BBY) shares rallied after it topped Q4 earnings expectations and offered encouraging guidance.
• Brinker International Inc. (EAT) raised its outlook for fiscal 2010 and also increased its quarterly dividend.
• China Automotive Systems Inc. (CAAS) reported that its revenue had doubled and it beat earnings expectations.
• ConAgra Foods Inc. (CAG) Q3 earnings matched estimates and revenue was flat, and it reaffirmed its outlook.
• Finish Line Inc. (FINL) shares rallied after it reported that Q4 earnings came in better than analysts' expected.

KB Home (KBH) reported first-quarter earnings Tuesday morning. The homebuilder said its loss came in at 71 cents per share. A year ago, KBH lost 75 cents per share. While the quarterly loss was less than last year's, it was larger than the Street's expected loss of 42 cents per share.

Quarterly revenue fell to $264 million from $307.4 million a year ago. Not only was revenue worse than a year ago, but it also missed expectations for revenue of $277 million.

It looks like John Paulson wants to get ahead of the crowd. He and other large homebuilders are buying prime building lots in states like Arizona, Colorado and Nevada.

The big players like Lennar Corp (LEN), Standard Pacific Corp. (SPF), KB Home (KBH), DR Horton (DHI) and Toll Brothers (TOL) are all grabbing lots at bargain basement prices.

Here are some highlights from this past week's earnings coverage on BloggingStocks:

• Aetna Inc. (AET) shares declined after the insurer issued a surprise earnings warning for 2010.
• Alcoa Inc. (AA) swung to a smaller-than-expected Q4 profit even as revenue declined, sending shares lower.
• Carter's Inc. (CRI) posted strong Q3 earnings that topped estimates and same-store sales growth.
• Chevron Corp. (CVX) shares declined slightly after the company issued a surprise earnings warning.
• Con-Way Inc. (CNW) was downgraded due in part to concerns about near-term earnings.

KB Home (KBH) took its turn reporting earnings Tuesday. While the homebuilder scored its first profit in nearly three years, the stock turned lower in early trading.

In the three months ended November 30, KB Home banked $100.7 million, or $1.31 per share (including a tax gain of $191.7 million). This compares favorably to a year-ago loss of $307.3 million, or $3.96 per share. Revenue, however, dropped to $674.6 million from $919 million on a year-over-year basis. This topped Wall Street's expectations for a per-share loss of 42 cents and revenue of $578 million.

The Federal Reserve's first Beige Book report of the year is due out this week. The report is a compilation of anecdotal information on current economic conditions from each of the 12 Federal Reserve Bank districts. The data comes from interviews with business contacts, economists, market experts, and other sources. The previous report, released in December, showed modest improvement in eight of the districts, while the October report confirmed that the economy was stabilizing after earlier declines.