Protect Yourself from the Spanish Rally

This column originally appeared on Real Money at 9:30 a.m. EDT on June 11.

NEW YORK ( Real Money) -- It's the same old song again. A nation on the verge of a banking crisis gets billions of dollars injected into the banking system and the stock market rejoices.

The biggest surprise of the $125 billion Spanish bailout is that it is actually a surprise to begin with. I wouldn't buy too much into this rally. If you are someone that likes to invest on news like this, then the smart move would have to buy several weeks ago when pessimism was growing, knowing full well that at the end of day a bailout was coming.

Instead, if this rally has a few legs it may pose a worthwhile opportunity to buy some cheap insurance in the form of covered call options on positions you already own. You may also want to consider using the price advance to build up some extra cash to put back to work when prices indicate that valuations are attractive.

While I agree that Spain needed capital and providing the $125 billion was the best, least-desirable solution, the long-term value creation comes from earnings growth over time.

I would also look in areas where virtually no one wants to touch today and the winner today may be Spanish banks. Specifically, I am referring to Banco Santander ( STD), the Madrid-based global banking giant. Although Spanish-based, Santander derives only 13% of its profits from the home country. Europe excluding the UK accounts for just 20% of profits. The bulk of profits, nearly 60%, comes from emerging markets. With loan loss provisions at a cyclical high in the first quarter of 2012, Santander still pulled in about $2 billion in profit in the first quarter of 2012.

At the current share price of $6, Santander shares yield over 12% (depending on the USD/EURO exchange rate). So far there is no indication that the dividend is going away, although with such a high dividend yield the company does have an easy way to preserve capital and still payout an attractive yield. Many will be surprised to know that in a recent survey by Global Finance of the world's safest 50 banks, the nine top banks are all based in Europe.

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