What Does The Greek Debt Crisis Mean For Investors?

Recently in the media we've been seeing some disturbing footage of people protesting on the streets of Greece. They're thrashing, yelling and chanting, and raising their hands in anger and fear about their future well being. It's a terrible social consequence to the serious financial debt crisis Greece is experiencing right now. Furthermore, the panic and concern that's being created has the potential for igniting yet another financial crisis beyond Greece's borders.

Here's why...

It was almost a year ago when the European Union injected 110 billion euro ($158 Billion) in the hope of rejuvenating Greece's debt-ridden economy. So, why wasn't this enough to put a dent in Greece's debt and return the economy to healthy growth?

In my opinion, this was a mere band-aid to bolster investor confidence in order to evade a potentially more severe global financial meltdown. But the reality is: the bailout funds did little to fix Greece's fundamental financial problems. That's why we're still seeing people from all sectors of Greek society demonstrating because their pensions have been slashed, prices are rising, businesses are being shut down, and unemployment figures are at a staggering 15.9 percent. Greece's economy continues to teeter on the edge, even after such a seemingly huge cash injection.

Unless there's some major debt restructuring and economic reform, then Greece's fate will continually be in doubt. And in the meantime, investors will remain nervous about other financially weak euro zone nations, cautious of an emerging debt crisis across Europe. So, what can be done to fix it?

There is talk of Greece receiving a whole new rescue deal of an additional 60 billion euro ($86 billion). In turn Greece has to implement further cuts and tax hikes, a cut-price sell off of its public assets, and a near impossible reform program which will be painful for an already overly anxious Greek society. But the question is: if 110 billion euro didn't work, is another 60 billion going to? Not on its own. The financial reforms are the key, and they ARE going to hurt. Expect more social discontent from the Greek population, which may not help to bolster global investor confidence in the short-term.

Whatever the outcome may be, the mere thought of Greece defaulting on their debt obligations to the European banks is sending shockwaves of negative speculation throughout the markets. And with the prospect of France's three largest banks facing credit downgrades because of exposure to Greek debt, investor anxiety remains high. This is but one of many reasons why we are seeing such huge swings in the market, and much, much uncertainty.

The situation is certainly very unfortunate. But let's keep our minds focused, as traders, on the opportunities being presented.

Volatile markets, such as these, provide an excellent opportunity to profit. And since the market is tending to go sideways to downwards, the conditions are in principle ideal for writing Covered Puts.

Let me show you what I mean...

Option prices are partly influenced by implied volatility, so in times of great uncertainty, when there is greater potential of change in the stock price, the implied volatility will be very high, thus making the premium (income) received by Writing Options higher. That's great news for Option Writers (sellers) where they receive a higher premium than they normally would in a less volatile market. It is precisely at times such as these in the market that it pays to have the knowledge of how to profit in many varying market climates.

May I wish you profitable trading!


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