There are many ways for investors to benefit from the slow-moving train wreck that is the European financial crisis. Among them:
Postpone your visit to Greece until next year when they are out of the euro and everything costs 60% less.
Postpone your visit to the rest of Europe until next year after the European Central Bank floods the continent with euros and the euro is on par with the dollar — or lower.
Or, you can trade the crisis by selling weekly puts and calls.
Trade #1: CurrencyShares Euro Trust
Write puts against the ETF for the euro — the CurrencyShares Euro Trust (NYSE:FXE). Just make sure they are well out of the money — there are huge premiums on these puts for obvious reasons.
Take a look at the $123 June Week One Puts. If you write them, they will give you a 1% return on capital in a couple of days if they expire worthless. The range of $120-$122 is a very firm floor, so sell something a bit higher, collect more premium and know you can always roll the position into the $120-$122 range and you should have an opportunity to get out with a profit even if the FXE moves faster — to the downside — than you expect.
Trade #2: Potash
Write puts against something Europeans — or anyone for that matter — can’t give up even during an economic crisis: food, specifically fertilizer companies like Potash (NYSE:POT).
Potash and the other fertilizer stocks sold off for no rational reason — not that rationality has anything to do with the markets or traders — and they are now bouncing back big time. Potash is a fundamentally great company selling for dirt cheap.
If you want less risk of being out the stock or having to roll it, you can sell the $39 June Week One put and get around a half percent return on capital — 25% per annum. Or, you can take on more risk and having your capital tied up for a while — not lost, tied up — by selling the $40 June Week One put and get around a 1% return on capital — 50% a year on that position.
The bottom line: Europe is a slow-moving train wreck that’s picking up speed. Stay ahead of it by selling — not buying — weekly puts and calls.
Michael Shulman is editor of Options Income Blue Print. Learn more about trading weekly options in this free short video.
