The turmoil in Europe over whether Greece will be forced out of the Eurozone has been a growing concern for investors as the crisis has worsened in recent weeks.
Sure, politicians and Greece's creditors might find a short-term solution any day now, but we all know what happens when you "kick the can" of debt down the road... the problem usually gets worse.
Most Greeks want their country to exit the euro, but I don't believe they fully understand the consequences of that. Yes, it will get the International Monetary Fund and the European Central Bank off their back.
But it will also cause shortages of essentials, rising prices, and further economic pain for the average Greek. This could lead to civil unrest.
If the "Grexit" does take place, there's a good chance investors around the world will look for safe havens. There is one that could be poised to rise in the coming weeks, even if Greece's problems do not come to a head. In that case, I'll show you a way to double your money.
And if Greece does implode, the trade will be even more profitable...
If the Grexit crisis escalates, one safe haven investors will consider is gold. The yellow metal has been languishing lately. Since February of this year, the SPDR Gold Trust ETF (NYSE Arca: GLD) has been stuck in an 8-point trading range with support at 110 and resistance at 120. This is the tightest range in years.
What is it going to take to get this metal on the move again? Well, a major Eurozone catastrophe could do the trick. But even without that, as Money Morning Resource Specialist Peter Krauth noted yesterday, there are reasons to believe the coming months will be profitable for gold investors.
Let's look at the Money Calendar for some clues...
Find out more about Tom's patent-pending "Money Calendar" right here...
At left is the data for GLD's performance from the end of June into the first week of August over the last 10 years.
In seven of those years, the price of gold and GLD have moved higher. The increases outpaced the moves lower by a rate of greater than 2:1. That means not only did the price move up more often than not during the summer, but the amount of the increases were greater.
What could we do to take a position in GLD and create a built-in stop to protect us in the event that we are wrong about GLD's prospects over the next 30 days or so?
Well, a call option on GLD makes perfect sense, and here's why.
So how much are we talking to "rent" this position, using call options, into August?
This example involves buying a GLD August 2015 $113 call (GLD150821C00113000) option for a mere $297, a far cry from the $11,300 you would pay for 100 shares of SDPR Gold.
"Renting" this ETF until August is what we are doing here, hoping to sell off the contract if the price of GLD goes higher.
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Based on the data of the past decade, I like our chances for doing that and pocketing a nice gain, even if Greece avoids an economic catastrophe.
Let's look at the risk graph at left. If GLD were to move up to the high end of the range ($120), the $113 calls we paid $298 for would be worth a minimum value of $700.
How can this be? Well, think about it for a moment...
If you had the right to buy 100 shares of GLD at $113 and it's currently trading at $120, there are 7 points of value between what you can purchase the stock for and what the market price is. Seven points multiplied by 100 shares is $700. Take that number and subtract what you paid for the option, and what's left over is your profit. A better than 100% gain on the option, all while the stock needs only to move about 5% to 6% up.
On the other side, if GLD were to drop, the only amount we would have at risk would be the price paid for the option. That means if GLD were to drop hard, we would not be obligated to purchase the stock.
And remember, if a messy Grexit causes investors to flock to gold and push the SPDR Gold Trust ETF up even higher than $120, your profit could be even more.