The “Best Industry To Invest In This Year” is already making people a lot of money…

Regular readers know that we’ve been talking about banks a lot lately. You might recall our February 19 issue where we said that this industry could be responsible for more than half the market’s growth.

So far we’ve been right…

Since we first told you about banks in February, Wells Fargo (NYSE: WFC), JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC) have all established new 52-week highs.

#-ad_banner-#This is a great sign for the banking industry. It’s an indication that the fears surrounding the industry following the financial crisis are fading, and that regulators are regaining faith in America’s banking system.

That’s one reason bank stocks have been on an absolute tear…

This chart shows how bank stocks have been trampling the S&P 500 recently.

But even after the rally, banks are still ridiculously cheap.

Of the six major U.S. banks — Citigroup, Wells Fargo, Bank of America, JP Morgan, Goldman Sachs and Morgan Stanley — only Wells Fargo is trading back above its 2007 highs. Wells Fargo’s performance is unique in that it was the only major bank to skate through the economic downturn almost completely unscathed. It was one of the few financial institutions that didn’t place big bets on the mortgage market.

From a macro perspective, the industry as a whole looks just as cheap. The KBW bank index — a good proxy for bank stocks in general — trades at a price-to-book ratio of just 1.2, well below its historic average of 1.7.

Of course, just because an industry is cheap doesn’t mean it’s a buy. After all, usually stocks that are hated are hated for a reason.

But as we’ve been telling you for the past few months, things are looking up for this sector. Not only do the recent stress tests reveal that bank balance sheets are significantly stronger than they were five years ago, the U.S. economy — a big determinant of how banks perform — is improving (you can see our analysis over the current economic environment by viewing our March 20 issue of StreetAuthority Daily).

This is good news for bank investors, especially those searching for income. Historically, banks have been a good place to look for high-yielding stocks. Before 2007, The SPDR S&P Bank ETF (NYSE: KBE) paid an average dividend yield in excess of 10%.

Unfortunately, even if (more likely when) banks increase their dividends following the recent stress test results, they will still be a far cry away from the dividend machines they were prior to the crisis. The current regulations are simply preventing them from making those big distributions that traditional bank investors are used to.

But that doesn’t mean you can’t get big yields from this sector…

In fact, we’ve found a way to earn 8.5% yields every 75 days investing in banks as big as JP Morgan Chase.

How? By selling put options…

I won’t speak too heavily on the mechanics, but just remember, by selling puts, investors earn premiums upfront for having to potentially buy a stock at a lower price. The thing is, as we’ve mentioned many times before, this can be a good thing if you want to own the stock anyway. (If you’re interested in learning the exact details of how I sell put options I’ve put together a special report that you can access for free by following this link).

To give you a quick idea on how it works, consider an example using JP Morgan Chase (NYSE: JPM).

Right now, shares of JPM are trading around $60. June put options with a $57.50 strike are selling for $0.97. Since each options contract controls 100 shares, a put seller would earn $97 for each contract sold.

If JPM is trading above $57.50 when the option expires in June, the seller keeps the premium they collected as pure profit. Since this trade requires a margin amount of $1,150 to open (the margin partially covers the broker in the event that the put option doesn’t expire worthless), this trade would produce an 8.5% return in 75 days.
The downside is that if JPM is trading below $57.50 on the day the option expires, the put seller has to buy the shares.

That’s why you’ll find the best put sellers only sell options on stocks that they think are undervalued. The more undervalued a stock, the more likely it is that put will expire worthless. But even you are required to buy the stock, then you’re simply buying shares in a company you think is already discounted to begin with.

That’s one reason this trade looks appealing for bank stocks right now. As we explained earlier, banks look ridiculously cheap. Even if they don’t rally the way we expect them too, selling put options on them could be a good way to generate some extra income from this sector.

P.S. – Amber Hestla has been using a put selling strategy in her premium newsletter, Income Trader, for over a year with profound results. Not only does she currently have a perfect track record, but each one of her trades has delivered — on average — a 61.8% annual gain for her subscribers. This strategy has become so successful that we literally feel like she’s stealing from Wall Street. That’s why we’ve developed a unique nickname for each one of her trades. We call them “Hestla Heists.” To learn more about these “Heists,” and find out how you can start doing them as early as next trading session, follow this link here.