Will Greece Bailout Funds Be Released Before a Default?

In July, Greece faces an enormous payment of €8.26 billion ($8.74 billion) on its staggering $356 billion debt. To put that debt figure into perspective, it's equal to 179% of Greece's GDP. The payments will be made over seven installments from July 7 to July 20 to four different lenders.

Greece bailout

However, the country has already said it can't make its July payments without bailout funds being released. And now, bailout talks have stalled. This is causing investors to question whether Greece bailout funds will be released in time to avoid a default.

A Greece default could cause the euro to drop and world markets to panic. Especially when combined with Brexit, which was started on March 29, and elections in France and Britain. While many around the world are panicking, we have a way for investors to profit from the volatility.

And that volatility is only expected to increase, because this one sticking point will cause Greece to default...

Greece Bailout Funds Hinge on This One Key Issue

In the past seven years, Greece has already received three bailouts. The bailout funds being discussed, if approved, will be an installment of the 2015 (third) bailout. Right now, there is disagreement among Greece lenders about how to approach the debt.

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The largest holder of Greece's debt within the EU is Germany. Germany wants to see further austerity measures that will allow Greece to meet its debt obligations.

The IMF, on the other hand, advocates lessening austerity measures so that the Greek economy can improve. It also wants to reduce the debt and lengthen the debt service dates. The IMF sees that as the best solution going forward to solidify Greece's finances.

In early April, it looked as if the EU and the IMF, along with Greece, were moving closer to an agreement. They reached agreements on key items such as reducing pensions, liberating the energy sector, and increasing taxes. However, they have still not reached a genuine agreement, and the one glaring omission that the IMF needs to join the bailout agreement is making Greek debt more manageable by extending due dates and reducing the debt.

Without an agreement that makes Greece's debt more manageable, the IMF will not sign on to additional bailout funds. Without the IMF, it is unlikely Greece will get the bailout it desperately needs.

And the longer talks go on, the more uncertain a bailout becomes. Previously, the parties were hoping to have an agreement by April 7. Now, they hope to reach a deal by May 22, when the Eurozone finance ministers meet.

Unless Germany is willing to extend due dates and forgive some of Greece's debt, it is all but certain the country will default in July. This uncertainty is going to cause the euro to fall compared to the U.S. dollar.

Last time Greece defaulted on a loan payment was June 30, 2015, and the lender was the IMF. The result was the euro dropping 2% in just two weeks.

In July, the country will need to pay $2.2 billion in private debt, $315.594 million to the IMF, $4.2 billion to the European Central Bank, and $10.8 million to the European Investment Bank.

The level of debt payments makes the European Central Bank more likely to be defaulted on than the IMF this time around. That would cause Greece to be kicked out of the euro, causing much more uncertainty in the markets than the default on the IMF.

All of the uncertainty around Greece, and the EU as a whole, is going to cause the euro to drop significantly. That drop will bring with it an opportunity to make 134% in a single trade while the world markets panic...

Profiting 134% from Failed Greece Bailout Talks

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It is not unreasonable to expect the euro to drop 5% between now and July. If Greece defaults on the European Central Bank, that drop could be much larger.

This makes the euro a perfect profit opportunity leading into the summer. While shorting the euro outright is possible, Money Morning Capital Wave Strategist Shah Gilani recommends buying the ProShares UltraShort Euro Trust ETF (NYSE: Arca: EUO).

The ETF will produce larger gains as the euro drops because it is leveraged. For every 1% the euro falls compared to the dollar, the ETF will rise by 3%. If the euro drops 5% by July, you would make 15% from owning the ETF.

Another way to profit from the drop of the euro is to purchase call options for the EUO ETF. This will reduce your costs and increase your potential return.

Currently, August call options for the EUO ETF with a strike price of $26 are trading at $0.85 a contract. If the euro drops by 5% between now and July, you could make 134%.

If the euro drops 5%, EUO will gain 15%, or $3.81 per share. The call option has a delta of 0.52175. If you multiply the delta by the price increase, you get the amount the call option will appreciate, in this case $1.99 per share.

Each call option controls 100 shares. So the cost would be $85 to get into the trade, and your profit would be $114 per contract for a gain of 134%.

While many investors flee the markets when volatility is high, our readers know there is always a profit opportunity.

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