"Implied volatility on the Financial Select Sector SPDR (ticker: XLF) that expires in 12 months is at about 30%, just below its peak value of 35%. Citigroup's derivatives strategists like selling 12-month XLF puts to get long financials. After all, the pessimism toward the sector is near clinical."

"Goldman Sachs' options strategists like the December 85 and 95 put spreads on Bear Stearns (BSC)."

"They also like buying Merrill Lynch (MER) and Citigroup (C) options in anticipation that continued subprime fallout may increase financial-sector volatility. That thinking likely propelled investors during the week who bought 50,000 March 26 XLF puts, while others bought about 10,000 December 30 puts."

"They also like buying Merrill Lynch (MER) and Citigroup (C) options in anticipation that continued subprime fallout may increase financial-sector volatility. That thinking likely propelled investors during the week who bought 50,000 March 26 XLF puts, while others bought about 10,000 December 30 puts."

"A less obvious Fed trade is the Consumer Discretionary Select Sector SPDR (XLY). Goldman strategists Maria Grant and John Marshall recommend buying a January 34 put and January 35 call "strangle.""