The financial sector has taken off in February, advancing about 6% so far this month, after being range-bound since last October. Economic growth, an improving earnings picture, growing business confidence, and increasing lending activity are contributing to renewed interest in the Canadian financial sector. Not to mention the possibility of dividend increases among the Canadian banks.

When you consider the possibilities, there may be more to come. Shares of Bank of Montreal (TSX: BMO, $61.38) and CIBC (TSX: CM, $81.81) look particularly interesting. With both stocks yielding more than 4% per annum, a hike in their dividend payout would bolster investor confidence. And that would mean a higher stock price.

Which you consider the fact that options are still relatively inexpensive, call buying seems to be the appropriate strategy to take advantage of a bullish scenario. With BMO, look at the July 62 calls at $1.85, or with CM, the July 82 calls at $2.95 per share.

You might also look at calls on a broad based liquid exchange-traded funds. An example would include the iShares S&P/TSX Capped Financials Index Fund (TSX: XFN, $24.68) which represents a cross-section of blue-chip stocks within the Canadian financial sector.

The downside with this sector play is the inclusion of insurance stocks within the financials index. Investors are not nearly as enthused about insurance stocks as they are for the Canadian banks. As such, insurance stocks could act as a drag on the sector over the near term.

On the other hand, the index offers diversification – albeit within one sector – and XFN options are actually less expensive (i.e. lower implied volatility) than are the options on Canadian banks. With that said, the XFN June 25 calls at 55 cents per share look interesting.