Deposit Bank Options in Your Portfolio

Here is a suggested strategy:

• Sell one Citigroup September $42.50 put for $1.45; this gives an effective purchase price of $41.10, or a 9.2% discount to current prices.

• Sell one J.P. Morgan September $32.50 put for $1.40; this gives an effective purchase price of $31.15, or an 11% discount to today's already-beaten-down price.

• Buy two BKX $88 puts for $2.80 each, giving a break-even point (or the level at which you are short the index) of $85.20, or just 6.8% below today's price.

The position has a net cost of (or debit of) $2.75, or $275, per unit; if you sold two Citigroup and J.P. Morgan puts and bought four BKX puts, it would cost $550 or debit to establish.

The theory behind this strategy is that selling puts is a nice way to back into owning two of the largest and most stable financial stocks, which also happen to pay dividends. Buying the puts on the BKX index gives you a certain measure of protection that should prevent you from incurring any losses or drawdown of capital as the individual stock price's decline toward your targeted purchase price.

If you're more bullish on the financials you can easily adjust the strategy by selling closer-to-money puts on Citigroup and J.P. Morgan or buying just one BKX put to create a less costly and higher purchase price. Conversely, a more bearish view can be accommodated by increasing the number of BKX puts purchased.