Manulife Financial Corp (TSX: MFC, Friday’s close $23.80) operates a very successful Guranteed Investment Fund (GIF) platform. A GIF contract guarantees at a minimum; investors will be returned their principal ten years from the date the contract is issued. GIF also provides features that allow investors to reset their guarantees and ten year holding periods, to lock in higher market values.

GIF is more than ten years old, which means over the next 24 months, Manulife may have to come good on some of those early guarantees. Meaning a large portion of those segregated fund reserve requirements are real, and not just hypothetical exposure at some point in the future.

Clearly, the fourth quarter 2008 sell-off that extended into the first quarter of 2009, seriously impacted GIF capital requirements (which were subjected to mark to the market accounting rules) and Manulife profits. Last week, Manulife reported a first quarter loss of -$0.67 per share versus a $0.57 profit in the same quarter a year earlier.

The bottom line is that Manulife, more than any other financial institution, is linked and likely leveraged, to the stock market. And while the resurgent stock market has eased pressure on the capital requirements, the question is whether markets will continue to rally near term.

Certainly markets have responded to so-called green shoots indicating a slowdown in the rate of decline. But to go higher, I suspect investors will need to see real evidence of real growth.

Options on Manulife are trading at 43% implied volatility. High by historical standards, but less than half Manulifes’ peak volatility. If evidence of growth emerges in the fourth quarter, markets will react early in the third quarter. Manulife is one way to leverage that scenario, options are a way to leverage Manulife.

Take a look at the Manulife July 24 calls at $1.65.