Monday, June 1st, 2020

Options Euro Trading


The Greek debt crisis appears to winding down to a Greek exit from the European Union and from the European Monetary Union. As such Forex traders are hedging their bets with Euro options trading. suggests selling option strangles on the Euro.

There is substantial risk of loss in trading futures and options. Past performance is not indicative of future results. Implied volatility in euro options is elevated, and recent swings in the currency have helped to pump up option prices. Let’s sell a strangle using the July options.

Sell July Euro Currency 116.50 calls and 105.50 puts

Intense volatility in the Euro has created an environment in which it is possible to sell strangles with distant strike prices at attractive pricing. For instance, It is possible to collect nearly $1,000 for a strangle with a 10 handle spread expiring 44 days from now. Last year it would have required a 4 to 5 handle spread to collect similar premium.

Read the article for the specifics. This is one example of Euro options trading in this uncertain period in which no one knows for sure if Greece will exit the Euro.

A Painful Breakup

As the unthinkable becomes thinkable, BBC News reports that the Greek central bank is concerned about a painful Euro and EU exit.

Greece’s central bank has warned for the first time that the country could be on a “painful course” to default and exit from both the eurozone and the EU. It comes as the Greek government and its international creditors blamed each other for failing to reach a deal over economic reforms. That failure is holding up the release of €7.2bn (£5.2bn) in bailout funds. About €30bn was withdrawn from Greek bank deposits between October and April, the central bank added. The central bank also warned the country’s economic slowdown would accelerate without a deal.

The fallout of Greek exit from the Euro will be felt on a much wider scale than just in Greece. Thus Euro options trading must take into account the perception that Greece will only be the first nation to leave the European Monetary Union.

European Dominoes

When the Great Recession was at its worst the so-called PIIGS nations were all in trouble. Portugal, Ireland, Italy, Greece and Spain all needed bailing out. It turns out that all except Greece are returning, albeit painfully, to solvency. A concern in the EU is that if Greece defaults on its debt payments and survives as a nation and economy that other nations may just think that there must be a better way than knuckling under to austerity measures dictated by the more solvent Northern European nations. Some have speculated that a Greek exit from the Euro will start the dominoes falling across Southern Europe as others exit the Euro. Euro options trading is a way of hedging risk is worst comes to worst in the Greek debt crisis.

Preparing for the Worst

The Guardian reports that Britain is planning for serious economic risks if and when Greece exits the Euro.

The British government is stepping up contingency planning to prepare for the “serious economic risks” posed by a Greek default and a possible exit from the euro, Downing Street has confirmed.

As David Cameron prepares to discuss the Greek crisis with the prime ministers of Italy and Luxembourg on Wednesday, No 10 confirmed the government was planning for the impact on businesses, banks, the financial sector and tourism. The chancellor said on Tuesday the UK government was taking “all steps” to protect Britain.

Whitehall officials, who held contingency planning meetings on the implications of a possible Greek exit from the euro in February, have stepped up their preparations in recent weeks amid fears that Greece could be on the verge of a debt default.

Individual Forex traders do not need to worry about national policy but rather use Euro options trading to contain trading risk.

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