In my opinion, we have reached a point where the financials are “stupid cheap”. Maybe they go lower but I can play it and not lose money. How? Very simple if you use options.
Our second recommendation since we have returned to this blog is to buy Bank of America $BAC and at the same time buy puts. Puts = insurance. I am not sure we are at the absolute low but we are at a low.
Bank of America is at $13.21. So we will recommend to buy 100 shares and then buy 2 puts to hedge our position. This is more than the tradition hedge which would be 1 put for each 100 share. I am prepared to be early and 2:1 put protection ensures this fact.
We will buy the March $13 Put for 0.59. So it will add $118 to our cost of 100 shares which is $1321. I am willing to give up $1.18 on the upside for protection on the downside. We will diagram this trade as we ride it.If you enjoy the content at iBankCoin, please follow us on Twitter