Options On Recovery: Speculating In Bank Stocks

Includes: BAC, C, JPM, WFC
by: Bear Fight

Investors looking for exposure to bank stocks should pursue an often overlooked option strategy. Investors can get paid handsomely for selling out-of-the-money put options on large capitalization bank stocks.


We are entering year four of the post credit crisis world. The Federal Reserve and the administration have done everything they can to keep the mega capitalization banks alive due to their role in the real economy.

Bears say that U.S. banks are zombies and will be weighed down by more regulation. But the interest part of the put option strategy is that investors are simply betting on the survivability of these equities not the return to prosperity. Outlined below are the four largest U.S. banks by assets. The sheer size of these institutions makes them important to the overall banking system ("too big to fail").

Largest U.S. Banks

Bank of America Corporation (NYSE:BAC)

Total Assets: $2,219,628.0

Price to Book Value: 0.4x

JPMorgan Chase & Co. (NYSE:JPM)

Total Assets: $2,289,240.0

Price to Book Value: 1.1x

Wells Fargo & Company (NYSE:WFC)

Total Assets: $1,304,945.0

Price to Book Value: 1.6x

Citigroup, Inc. (NYSE:C)

Total Assets: $ 1,935,992.0

Price to Book Value: 0.6x

Options Strategy:

Investors can sell out-of-the-money put options on the largest U.S. banks. Investor can earn between 7.3% and 12.6% on selling cash secured put options with significant margin of safety.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.