The European’s can be so dramatic! Will a deal with Greece get done? Will it not?
I really can’t say either, but the back and forth between the Troika and the Greek government is the stuff of mid-afternoon soap opera fodder. Whatever happens, my feeling is that it is going to be good for the Euro currency in general. Either the Greeks cave which is good for the Euro or they leave the EU which is probably REALLY good for the Euro. In either case, given the proper reward to risk scenario an upside play on the Euro could be in order. FXE is a very liquid ETF for the US$/Euro market. Take a look at the chart:
Sure, we would be buying the high of the range, but a resolution is a game changer. I can calculate the expected move using implied volatility. I would like to buy some more “drama time” so I will go out to July monthly expiration options. That implied volatility is ~12.40%. Using that value, a 50% confidence interval targets $114.55 and a full standard deviation move targets $115.50. A great reward to risk play would be to buy the FXE July 113/115 call vertical for $0.50. The maximum reward to risk ratio here is 3:1. Also notice that the 200-day moving average is right there at the $115 level for those technicians out there worried about technical resistance in a fundamental environment.
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