Elite E Services, Inc. Forex Trading & Technology
How to trade the collapse of the Eurozone
This article will explore the various technical methods to trade a potentialcollapse of the EU, it will not recommend any specific course of action.
US Stocks that do business in Europe
How is it th
at European news is causing US stock markets to drop?
Many USissues generate a large percentage of their revenue from the Eurozone. Adecline in the European economy would mean a decline in their revenue. Acomplete collapse of the European economy could mean a significantdisruption in that part of their business.McDonald’s being a good example, in a recent earnings release; McDonald’sblamed problems in Europe for sluggish numbers.
A big drop in the Europeaneconomy could put a dent in McDonald’s earnings, and thus cause the stock todrop. The problem with this strategy is that investors may not see an immediatecorrelation, thus, it may take weeks or months for it to play out. For example,it would be unlikely that as bad news about Europe is announced, McDonald’sstock is dropping. So this strategy should be researched carefully.
Available through most major clearing houses, options on Euro futures providea good way to bet on a Euro collapse with controlled risk. Options are theright but not the obligation to buy or sell the underlying contract.Warning to new options traders! Do NOT short options! It is possible to buy aput or a call, so it is possible to bet that the Euro will go up OR down, withoutshorting options. Shorting options is for investors who already have theunderlying instrument and want to generate premiums from it.If you want to bet that the Eurozone will not succeed with their debtrestructuring, you may want to purchase an option ladder. This would be doneby purchasing 5 long puts at 5 prices. The exact prices will change based onmarket demand, but your broker should provide some information as to themost significant strike prices, such as 1.25, 1.24, 1.2350, 1.22, 1.21. The goodthing about this strategy is when you purchase the options you know howmuch you are going to pay for them up front. If you are wrong, you have theknown investment in the strategy (the cost of the option) which can bemodified according to how much you want to invest in the strategy.