Banks are stronger than ever thanks to the efforts put forth after the 2008-09 financial debacle. Fundamentally, they’re on solid footing, flush with cash and ready to thrive in a rising-interest-rate environment.
This is the sweet spot.
Banks also told us that they will defend their shares with plenty of financial engineering. After successful stress tests, big financials have been increasing their dividends and authorizing more stock buybacks. This puts the bears at a severe disadvantage.
Since consumer spending remains strong — especially in electronic transactions — I will extend my enthusiasm to cover the transactors. Credit card payments are only going to increase and I want to bet long those who handle them too.
Today, I want to look at five banks and other finance-related stocks that have plenty of bullish winds at their backs. But we don’t want to own any of these stocks (yet). Instead, we’re going to create income from thin air using options.
Why aren’t we buying outright? Because technically, most financials are near decade-long prices, and it’s typically a fool’s errand to chase prices. I’m not worried about valuations, just timing, which is why the smart play is betting with the bulls without actually owning the stocks themselves.
Today’s five trades are structured so the worst-case scenario ends in buying these companies at a discount. That is a totally acceptable outcome in this macro-economic environment. No matter what, we collect our money now. If we win, we retain maximum gains … and even if we lose, we get to buy great stocks at a discount.
In no particular order, here are five bullish trades on finance-related stocks.