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According to the IMF, the current Greek debt payment schedule is not sustainable, putting the release of bailout funds on hold. While this may seem like a warning sign for investors, it has actually created a market-beating investment opportunity in the process.
The bailout funds in question are the last installment of the third bailout program started in 2015. The current bailout program goes through the summer of 2018. At the end of the program, EU officials will evaluate Greece's situation and make a determination about debt relief.
However, the IMF wants to have specific measures laid out before they approve the bailout funds. This deviates from the original agreement in 2015 and is holding up the funds that Greece desperately needs to make its July debt payments.
This delay in bailout funds is putting Greece's ability to pay its debt in jeopardy. At the same time, this dilemma is presenting us a huge profit opportunity thanks to default concerns in the Eurozone...
What Is the Greek Debt Payment Schedule?
Between now and July, the country owes €8.2 billion ($9.2 billion) to short-term Treasury bill holders, with €3.8 billion ($4.3 billion) due on June 9 and the rest due on July 14.
In addition to the Treasury bills, the country owes a payment of nearly €2.1 billion ($2.4 billion) on July 17 for private investor bonds and over €290 million ($326 million) on the second IMF bailout loan.
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Three payments are due on July 20: two European Central Bank (ECB) bond payments totaling nearly €4 billion ($4.5 billion) and one European Investment Bank (EIB) bond totaling €10 million ($11.2 million).
That brings the total payments to €14.6 billion ($16.4 billion) between now and July. For the rest of 2017, Greece has additional debt payments of approximately €5.5 billion ($6.2 billion).
In short, Greece desperately needs the €7.6 billion ($8.5 billion) in bailout funds. Without them, the country will be unable to pay its debts in July, possibly causing it to crash out of the euro.
The next chance Greece has to secure bailout funds is June 15. Until then, investors will be watching to see if the country continues to service its debt. This uncertainty will cause the euro to drop, offering us a profit play in the process...
Playing the Euro to Profit from Greek Uncertainty
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When Greece failed to make its debt payment in June 2015, the euro dropped 2% in the two weeks that followed.
Considering the European market was stable at the time, this was a significant loss. Today, the situation is much different. The markets are much less stable, and it won't take much to trigger a tumble.
Recent concerns over Brexit, terror threats, and even an upcoming German election have EU markets on edge. There is a great deal of uncertainty today in the EU, and a missed payment by Greece, especially if there is no fourth bailout deal, could cause the euro to drop by 5% or more.
This volatility creates a profit opportunity for investors by taking a short position on the euro. Yes, you can short the euro directly, but Money Morning Capital Wave Strategist Shah Gilani has a better option.
The ProShares UltraShort Euro Trust (NYSE Arca: EUO) ETF allows you to short the euro with leverage. For every 1% the euro drops against the dollar, the value of the ETF rises by 3%. So if the euro drops 5%, you will make 15%.
You can also purchase call options on the EUO ETF. This is one of best profit plays for an expected drop in the euro. A call option contract is inexpensive to purchase, and the upside is substantial. If you buy call options, just be sure to use caution when you pick the expiration date.
In this case, the best expiration date on call options is sometime in August, because this volatile issue with the bailout and debt payment should last through July to early August. If your call option expires too soon, you could miss out on the profit opportunity.
The last way to make money from the problems in Greece is by shorting banks that deal heavily with the euro. Gilani believes that investors should use the iShares MSCI Europe Financials ETF (Nasdaq: EUFN) to short the European banks.
Inevitably, when the euro plummets, European bank stocks are going to fall. Shorting this ETF is a great way to make a profit as those stocks tumble. You can also buy put options, which are relatively cheap and will appreciate as the ETF loses value.
The Bottom Line: Unease is continuing to grow as a Greek default inches closer. Even if the country does default, a bailout deal will likely come to the rescue. That means that any losses are temporary. But by preparing now, you can set yourself up to profit while the euro tumbles.
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