Fri Nov 21, 2008: Bank Stock Bargains, Good Time to Sell Puts?

The following bank stocks have corrected more than 40% from their highs. Citicorp is down more than 90%.

Chart of Bank of America stock

Chart of Wells Fargo stock

Chart of Citicorp stock

Chart of J.P. Morgan stock

While there are further downside price risks, including likely dividend cuts, investors looking to buy here might consider using options.

Selling puts now can offer potential income and/or a chance to buy these stocks at an even deeper discount.

BAC December 10 puts can currently be sold for 1.93 ($193 per option contract for 100 shares). Ignoring commissions, this would provide the option writer a 23.9% income for four weeks if the option expires worthless, assuming the deposit of $807 in cash so there would be just enough in the account to purchase the stock if the option got assigned.

If the stock closes below $10.00 at December expiration, the net purchase price will be only $8.07 per share.

Percentages for the other three bank stocks are also shown in the table below.

Until next time, best of luck with your option investments!