CME Group, Inc. (CME) announced it has entered into a seven-year license agreement with the Chicago Board Options Exchange that will allow CME Group to list futures and options on futures for volatility indexes on a variety of asset classes. These contracts will be listed with, and subject to, the rules and regulations of the particular exchange where the products will be traded.

CBOE Volatility Index: The VIX was down 1.38 to 17.34.

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

CME Group (CME) fell short of analysts' fourth-quarter profit expectations on Thursday, with the firm reporting earnings of $3.37 per share, compared to consensus expectations for a profit of $3.43 per share. This morning, two brokerage firms expressed their post-earnings skepticism by handing out price-target cuts.

Specifically, KBW lowered its forecast from $360 to $350, while Susquehanna chopped its price target from $370 to $345. Shares of CME finished Thursday at $269.29, so both brokerage firms are still anticipating some healthy gains from the stock during the next year. In fact, both targets exceed the equity's average 12-month price target of $342.35, as reported by Thomson Reuters, which implies expected upside of more than 27% from yesterday's close.

As an observer of financial markets, I've been stunned by the recent growth of options trading. Options and futures trading have become huge among individual investors, and the interest in the topic is only getting bigger.

So, who benefits most from the surge in options and futures trading? CME Group (NASDAQ: CME).

CME Group is the company that operates the Chicago Mercantile Exchange and the Chicago Board of Trade, the place where options and futures trades actually take place. Whenever you place an options or futures transaction, the only sure winner in the game is CME Group.

As many shoppers have realized in this recession, just because something is cheap doesn't mean it's a bargain.

This is especially true in the stock market, where you definitely get what you pay for.

There have been plenty of low-priced deals on stocks lately, as plenty of good companies watched their shares take a beating in our economic crisis. But that doesn't mean all cheap stocks are worth buying. Unless that bargain goes up in value, it's not a bargain.

Analyst upgrades:

• UBS upgraded Target (NYSE: TGT) to Buy from Neutral and raised its price target to $52 from $45 citing reduced inventories, some credit stability, and an improved back-to-school period.
• Credit Suisse said concerns regarding Safeway's (NYSE: SWY) price position are overblown and that earnings risk is limited. The firm upgraded shares to Outperform from Neutral and raised the target price to $25 from $22.
• Oppenheimer upgraded Canadian Solar (NASDAQ: CSIQ) to Outperform from Perform as it believes the story is underappreciated following the recent sector rally. The firm has a $14 price target on the stock.
• CME Group (NASDAQ: CME) was upgraded to buy from Neutral at Goldman.
• Freeport McMoRan (NYSE: FCX) was upgraded to Overweight from Neutral at JP Morgan.
• Gilead Sciences (NASDAQ: GILD) was upgraded to Buy from Neutral at FTN Equity.

Minyanville contributor Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

• I've taken a leg in the Ultra QQQ ProShares (AMEX: QLD). The market has popped 2% off lows, the question is will it pop the full 7%?
  
  
• I'm seeing a few positive divergences and the percentage of stocks below the 50 day moving average is well below the 2002 levels. I haven't looked at the percentage of stocks below the 200 day, but I'm sure the reading should be equally distressed.
  
  
• I know people are pricing in earnings per share Armageddon in tech land -- so the question is, what happens to many of these stocks if it's really just sort of "punk" and not a total cataclysmic drop in revenue guidance.
  

Analyst upgrades:

• Wachovia upgraded shares of The Goldman Sachs Group Inc (NYSE: GS) to Outperform from Market Perform on expectations for greater pricing power given Goldman's position as the largest remaining independent securities firm.
• Keefe Bruyette upgraded Investment Technology Group Inc (NYSE: ITG) to Outperform from Market Perform as they believe the company will take market share with the reshaping of the large wire-house brokerage community. The company's target was raised to $37 from $33.
• Broadpoint raised Hoku Scientific Inc (NASDAQ: HOKU) to Buy from Neutral as they believe the contract with Tianwei New Energy reduces financing risk.
• ACE Ltd (NYSE: ACE) and The Travelers Companies Inc (NYSE: TRV) were upgraded to Buy from Neutral at Goldman.
• Axcelis Technologies Inc (NASDAQ: ACLS) was upgraded to Buy from Hold and Evergreen Solar Inc (NASDAQ: ESLR) was lifted to Hold from Sell at Citigroup.

Analyst downgrades:

It has been a tough year for investors. We have been dealing with recession fears, housing market worries, high gasoline prices and a very weak U.S dollar. As much as we would love to say that the worst is behind us, we still could be in for some more rocky times ahead. So its best to try to figure out which stocks would be best to avoid for the time being.

Richard Gibbons wrote up a nice piece over on The Motley Fool that looks at some of the stocks that we would be wise to stay away from at this time. Regardless good or bad times, he is convinced there are always ways to make money, but in order to find the winners, it is also necessary to pull out the losers.

So how can we separate out the winners from the losers?

Gibbons seems to have a simple answer for this. He believes there is really no use in wasting our time trying to separate the winners from the losers as there are so many great cheap stocks that could offer us a chance to make money. Gibbons' advice is to not choose ugly and risky companies that could put our hard earned money at risk. To makes this clear, he uses a baseball analogy, expressing his options for the curve balls instead of the fastballs.

CME Group (NYSE: CME) is recently trading at $479, below its close of to $523.50 Monday.

CME reported Q1 EPS $4.67 ex-items versus consensus of $4.81.

Bank of America says: "Core EPS miss likely to pressure stock, Long-term growth story still intact."

CME May option implied volatility of 53 is above its 26-week average of 35 according to Track Data, suggesting larger risk.

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

CME Group (NYSE: CME) is recently trading down $101.34 to $487.98. The U.S. Department of Justice called for an end to futures exchanges being permitted to own or control clearing functions. The CME issued a statement welcoming the opportunity to participate in industry discussions concerning market structure and the organization of clearing and settlement services. CME and NYMX (NYSE: NMX) confirmed on January 28 that they are engaged in preliminary discussions regarding CME's potential acquisition of NMX. CME call option volume of 23,643 contracts compares to put volume of 20,172 contracts. CME March option implied volatility of 62 is above a level of 47 from this morning and its 26-week average of 32 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

CME Group (NYSE: CME) is recently trading down $42 to $546. The drop is related to the U.S. Department of Justice's call for an end to futures exchanges being permitted to own or control clearing functions.

CME & NMX confirmed on January 28 that they are engaged in preliminary discussions regarding CME's potential acquisition of NYMX Holdings (NYSE: NMX).

CME February 550 straddle is priced at $41.05. CME March option implied volatility of 49 is above its 26-week average of 32 according to Track Data, suggesting larger risk.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

CME Group is preliminary talks to buy energy/precious metals market Nymex, CME announced Monday, in a statement.

Under terms being discussed, CME Group Inc. (NYSE: CME), the world's largest derivatives exchange, would pay Nymex Holdings, Inc. (NYSE: NMX) $36 per share in cash and 0.123 of a CME common share, which would value the deal at about $11 billion, Reuters reported Monday.

Nymex shares rose $9.01 to $116.17 on the news, while CME's shares fell $12.77 to $616.01 in Monday afternoon trading.

CME Group was created in July 2007 via the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade in a $9.3-billion deal. Nymex, which is short for the New York Mercantile Exchange, went public in November 2006.

The exchange stocks have been hot issues in the past few quarters as investors have been betting on increased trading activity from hedge funds, higher volatility, and so on.

But just this week, exchange stocks have received a beating harder than the markets as a whole. I believe that if a snapback rally occurs next week, these stocks should bounce back harder than the overall market. Two particular exchange stocks have appealing charts: CME Group (NYSE: CME) and NYSE Euronext (NYSE: NYX). Both of these charts display similar characteristics, as you can see below:

MOST NOTEWORTHY: The Wet Seal (WTSLA), Brocade Communications Systems(BRCD), IAC/InteractiveCorp (IACI), CME Group (CME) and Rogers Communications (RCI) were today's noteworthy initiations:

• Merriman believes the turnaround at Arden B is well underway and both it and the Wet Seal chains have tremendous opportunities for long-term growth, initiating The Wet Seal (NASDAQ: WTSLA) with a Buy rating.

• Pacific Growth is positive on Brocade's (NASDAQ: BRCD) diversification into new products and services, starting shares with a Buy rating.

• Banc of America initiated shares of InterActiveCorp (NASDAQ: IACI) with a Neutral rating.

• William Blair believes the newly-formed CME Group (NYSE: CME) has an even more dominant competitive position within the growing futures exchange industry, reinstating shares with an Outperform rating.

• JP Morgan said Canada is an attractive wireless market and that Rogers Communications (NYSE: RCI) is well positioned, starting shares with an Overweight rating...

OTHER INITIATIONS:

• Deutsche Bank initiated Waters Corp (NYSE: WAT) with a Hold rating.

• Goldman started Infinera Corp (NASDAQ: INFN) with an Equal Weight.

• Kaufman reinstated Savvis (NASDAQ: SVVS) with a Hold.

• Pacific Growth initiated Network Appliance (NASDAQ: NTAP) with a Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).