The Greek debt drama continues to deepen in the wake of the successful “no” vote referendum on Sunday greatly increasing the risk of the country’s exit from the eurozone.
The screws are being tightened on the Greek banking system as the European Central Bank on Monday increased the collateral haircuts on certain government debt. As a result, solvency is threatened as Greek financial institutions remain closed. This is a clear strategy to put political pressure on Athens to accept a new bailout agreement — even if it doesn’t contain the debt relief the people of Greece are clamoring for.
So far, they aren’t budging.
Greek arrived at a Eurogroup meeting of finance ministers Tuesday morning without a new proposal. German Chancellor Angela Merkel said there is no basis for talks with Greece as a result. As a result, the S&P 500 breached its 200-day moving average this morning for the first time since October, setting the stage for continued losses in the days to come.
Here are three ways you can profit from the S&P 500’s Greece-induced slide by trading options:
3 Ways to Profit From Greece by Trading Options: Russell 2000 iShares (IWM)
Click to Enlarge Small-cap stocks in the Russell 2000 demonstrated relative strength in late June rushing to a new high. But the move wasn’t supported by healthy market breadth measures, making the rally unsustainable.
As a result, I recommended the Russell 2000 iShares (IWM) Jul $129 puts to my Edge Pro subscribers on June 24. The position is up 252% already; with room for much more as a long uptrend going back to January is broken.
3 Ways to Profit From Greece by Trading Options: iPath S&P 500 VIX Short-Term (VXX)
Click to Enlarge The CBOE Volatility Index had been in stasis for months as the overall stock market seemed increasingly unshakable. Fears over a Grexit are undermining that, pushing up the cost of put option protection in a big way — which in turn, is boosting the VIX.
As a result, the iPath S&P 500 VIX Short-Term (VXX) Jul $17 call options I recommended to Edge Pro subscribers on June 24 are up 413% with room for more as the underlying ETF, which maintains a massive short float, could zoom much higher should Greek bailout negotiations falter.
And that looks increasingly likely.
3 Ways to Profit From Greece by Trading Options: iShares 20+ Year Treasury Bond Fund (TLT)
Click to Enlarge Tuesday’s disappointing Eurogroup meeting unleashed a wave of safe haven buying into U.S. Treasury bonds. This has pushed the iShares 20+ Year Treasury Bond Fund (TLT) calls up and out of a downtrend going back to January, setting the stage for a drop in long-term bond yields in the weeks to come.
That’s lifted the value of the July $118 TLT calls I recommended to Edge Pro subscribers on Monday to a gain of 63% already, Of the three options plays presented, this is the best bet for new money.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
